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Measures of Trade Openness Using CGE Analysis

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  • Lloyd, P.J.
  • MacLaren, D.

Abstract

While a number of measures of openness have been used in empirical studies, none has a theoretical derivation. Using cge models of an economy, this paper derives a number of measures of opennesss which lie on the unit interval and have a welfare interpretation. One group of measure are transformations of the Uniform Tariff Equivalent which are zero for a closed economy and unity for a completely open economy, and have the property that national welfare increases monotonically with the measures of openess. An alternative measure is calculated as the ratio of the volume of trade in a restricted trade situation to that under the free trade situation. These measures are calculated for 8 regions of the world economy, using the GTAP model. We find close correspondence between all the cge measures but the ranking of countries according to these measures differs substantially from that of the actual trade ratios which are most commonly used in empirical studies.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 659.

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Length: 18 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:mlb:wpaper:659

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Postal: Department of Economics, The University of Melbourne, 5th Floor, Economics and Commerce Building, Victoria, 3010, Australia
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Web page: http://www.economics.unimelb.edu.au
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Keywords: INTERNATIONAL TRADE ; ECONOMIC MODELS;

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References

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  1. Anderson, James E., 1992. "Tariff index theory," Policy Research Working Paper Series 1023, The World Bank.
  2. Anderson, James E & Neary, J Peter, 1996. "A New Approach to Evaluating Trade Policy," Review of Economic Studies, Wiley Blackwell, vol. 63(1), pages 107-25, January.
  3. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.
  4. Feenstra, R.C., 1995. "Estimating the Effects of Trade Policy," Department of Economics 95-10, California Davis - Department of Economics.
  5. J Anderson & J.P. Neary, 1994. "Measuring the Restrictiveness of Trade Policy," CEP Discussion Papers dp0186, Centre for Economic Performance, LSE.
  6. Lloyd, P. J. & Schweinberger, A. G., 1988. "Trade expenditure functions and the gains from trade," Journal of International Economics, Elsevier, vol. 24(3-4), pages 275-297, May.
  7. Brown, Drusilla K., 1987. "Tariffs, the terms of trade, and national product differentiation," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 503-526.
  8. Edward E. Leamer, 1988. "Measures of Openness," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 145-204 National Bureau of Economic Research, Inc.
  9. James Anderson, 1995. "Trade Restrictiveness Benchmarks," Boston College Working Papers in Economics 290., Boston College Department of Economics.
  10. Clinton R. Shiells & Kenneth A. Reinert, 1993. "Armington Models and Terms-of-Trade Effects: Some Econometric Evidence for North America," Canadian Journal of Economics, Canadian Economics Association, vol. 26(2), pages 299-316, May.
  11. Edwards, Sebastian, 1993. "Openness, Trade Liberalization, and Growth in Developing Countries," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1358-93, September.
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Citations

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Cited by:
  1. Lloyd, P. J. & MacLaren, Donald, 2000. "Openness and growth in East Asia after the Asian crisis," Journal of Asian Economics, Elsevier, vol. 11(1), pages 89-105.
  2. Salvatici, Luca & Cipollina, Maria, 2006. "Measuring Protection: Mission Impossible?," Working Papers 18876, TRADEAG - Agricultural Trade Agreements.
  3. Chandran, V.G.R. & Munusamy, 2009. "Trade openness and manufacturing growth in Malaysia," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 637-647, September.
  4. Scott McDonald & Terrie Walmsley, 2004. "Preferential Trade Agreements and the Optimal Liberalisation of Agricultural Trade," Working Papers 2004010, The University of Sheffield, Department of Economics, revised Aug 2004.
  5. Flôres Junior, Renato Galvão, 2008. "Are CGE Models Still Useful in Economic Policy Making?," Economics Working Papers (Ensaios Economicos da EPGE) 674, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
  6. Henningsen, Arne & Henningsen, Géraldine, 2012. "On estimation of the CES production function—Revisited," Economics Letters, Elsevier, vol. 115(1), pages 67-69.
  7. Ansgar Belke & Lars Wang, 2006. "The Degree of Openness to Intra-Regional Trade Towards Value-Added Based Openness Measures," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 226(2), pages 115-138, March.
  8. De Lombaerde, Philippe A.A., 2009. "On the dynamic measurement of economic openness," Journal of Policy Modeling, Elsevier, vol. 31(5), pages 731-736, September.

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