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Measures of trade openness using CGE analysis

  • Lloyd, P. J.
  • MacLaren, D.

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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Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 24 (2002)
Issue (Month): 1 (March)
Pages: 67-81

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Handle: RePEc:eee:jpolmo:v:24:y:2002:i:1:p:67-81
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505735

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  1. James Anderson, 1995. "Trade Restrictiveness Benchmarks," Boston College Working Papers in Economics 290., Boston College Department of Economics.
  2. 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.
  3. Feenstra, R.C., 1995. "Estimating the Effects of Trade Policy," Papers 95-10, California Davis - Institute of Governmental Affairs.
  4. Brown, Drusilla K., 1987. "Tariffs, the terms of trade, and national product differentiation," Journal of Policy Modeling, Elsevier, vol. 9(3), pages 503-526.
  5. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, vol. 49(2), pages 307-335, May.
  6. James E. Anderson, 1993. "Tariff Index Theory," Boston College Working Papers in Economics 215, Boston College Department of Economics.
  7. J Anderson & J.P. Neary, 1994. "Measuring the Restrictiveness of Trade Policy," CEP Discussion Papers dp0186, Centre for Economic Performance, LSE.
  8. Anderson, James E. & Neary, J. Peter, 1992. "A new approach to evaluating trade policy," Policy Research Working Paper Series 1022, The World Bank.
  9. 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.
  10. 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.
  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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