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The Bazaar Economy Hypothesis Revisited. A New Trade-Related Measure for Germany's International Openness

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  • Ansgar Belke
  • Anselm Mattes
  • Lars Wang

Abstract

In this paper we argue that traditional measures of openness of an economy usually overstate the actual degree of openness. This is due to the fact that traditional export or import shares are measured as a share of the gross domestic product. The former are expressed in gross terms, the latter in value added terms. In this way the actual interdependences between economies are overstated. We develop a new value based openness indicator that includes interregional and inter-industrial dependencies. Based on a Leontief production system and input-output tables we argue that export-induced imports of intermediate parts must be subtracted of the value of exports in order to obtain the real value added in the export sector. The same reasoning applies to the import side. We use these measures of actual openness to calculate openness indicators for Germany using GTAP data. We show that traditional measures of openness exaggerate the actual openness and argue that these new indicators are an important contribution to the debate about the German “bazaar economy”.

Suggested Citation

  • Ansgar Belke & Anselm Mattes & Lars Wang, 2011. "The Bazaar Economy Hypothesis Revisited. A New Trade-Related Measure for Germany's International Openness," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 57(1), pages 67-87.
  • Handle: RePEc:aeq:aeqaeq:v57_y2011_i1_q1_p67-87
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    File URL: http://dx.doi.org/10.3790/aeq.57.1.67
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    References listed on IDEAS

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    1. Hans-Werner Sinn & Timo Wollmershäuser, 2012. "Target loans, current account balances and capital flows: the ECB’s rescue facility," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 468-508, August.
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    4. Hans-Werner Sinn & Timo Wollmershäuser, 2011. "Target Loans, Current Account Balances and Capital Flows: The ECB’s Rescue Facility," CESifo Working Paper Series 3500, CESifo Group Munich.
    5. Alessandra Casella, 1999. "Tradable deficit permits:efficient implementation of the Stability Pact in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 321-362, October.
    6. Whittaker, John, 2011. "Intra-eurosystem debts," MPRA Paper 38368, University Library of Munich, Germany.
    7. Guido Lorenzoni, 2008. "Inefficient Credit Booms," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 809-833.
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    More about this item

    Keywords

    degree of openness; openness to intra-regional trade; bilateral trade; value-added approach; input-output analysis; bazaar economy;

    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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