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Measuring foreign exposure

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  • Imbs, Jean
  • Pauwels, Laurent

Abstract

We introduce a model-based approximation for assessing foreign exposure via direct and indirect trade. In the model, exposure can be approximated by the fraction of production sold abroad, either directly or indirectly. Simulations show that this ratio accurately reflects the responses of value added to foreign supply shocks across most of the parameter space. It also effectively captures the responses of value added to foreign demand or trade shocks for a more restricted range of parameters. Conversely, other well-known metrics of foreign exposure do not perform well in the simulations. Data show that our measure of foreign exposure correlates significantly with various measures of economic activity, even in service sectors generally thought to be insulated from foreign influences. In contrast, these correlations are either insignificant or incorrectly signed when alternative measures of foreign exposure are used.

Suggested Citation

  • Imbs, Jean & Pauwels, Laurent, 2025. "Measuring foreign exposure," Journal of International Economics, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:inecon:v:157:y:2025:i:c:s0022199625000820
    DOI: 10.1016/j.jinteco.2025.104126
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    Keywords

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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