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What Does Trade Openness Measure?
Author(s) -
Fujii Eiji
Publication year - 2019
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12275
Subject(s) - openness to experience , economics , variable (mathematics) , measure (data warehouse) , variety (cybernetics) , international economics , econometrics , international trade , statistics , mathematics , psychology , mathematical analysis , social psychology , database , computer science
Abstract An empirical measure of trade openness is defined as the ratio of total trade to GDP, and represents a convenient variable routinely used for cross‐country studies on a variety of issues. However, the effects that the crude measure captures remain ambiguous, making it difficult to interpret the empirical results. Drawing on several strands of the literature, this study examines the informational content of the trade openness measure using intranational and international data. We find that, even for fully integrated economies within a country, trade openness is approximately half as variable as it is for segmented diverse countries around the world. The information it conveys is better characterized as the extent of the economic remoteness and idiosyncratic distribution of sectoral production. The cross‐country variation of trade openness derives more from the variability in GDP than trade.