A New Measure of Trade Openness

Abstract

Trade openness, popularly measured as (X + M)/GDP in the hundreds of studies published to date, consistently considers the world's biggest trading countries such as the USA, the UK, Japan and Germany to be closed economies, irrespective of the data set used. This study suggests a composite trade share measure that more completely reflects reality by combining two important dimensions of trade openness: trade share and the relative importance of a country's trade level to total world trade. Robustness tests support the new proposed measure in lieu of the conventional measure of openness and suggest that the latter may not only be incomplete but may also overstate the impact of trade on such things as income and the environment.

Does Trade Openness Matter for Economic Growth in the CEE Countries?

“…This paper attempts at using a newly developed measure of trade openness that is as objective as possible, while at the same time captures the dimensions of trade openness, including a country's share of trade, and its interaction and interconnectedness with the rest of the world. The paper builds on the novel lead by Squalli and Wilson (2011), who propose and construct this new measure of trade openness for a broad cross-section of countries. As opposed to their work, however, we construct the measure of trade openness for a panel of relatively homogenous group of countries, the CEE countries.…”

“…The policyoriented measures of trade openness used in earlier studies have been argued to be subjective, while the simple outcome-oriented measures only capture one aspect of trade openness, namely: countries' share of trade. Hence, following Squalli and Wilson (2011), the paper constructs a new outcome-oriented measure of trade openness which captures a country's share of trade, and its interaction and interconnectedness with the rest of the world. Using fixed-effects regressions for 17 CEE countries over the period 1994 -2014, the paper finds trade openness to be important for growth within the CEE countries.…”

Subsidizing firm entry in open economies

“…11 We augment this data set with information on trade openness at the country level, sticking to some standard proxies that have been widely used in the literature. The most common openness indicator is trade intensity which is defined for country i as the sum of total exports and imports over GDP, Squalli and Wilson (2006) have criticized this conventional approach because it typically classifies some of the most important trading nations (such as USA or Germany) as relatively closed economies. They suggest an alternative "composite trade intensity" ( ), which corrects the standard TI for the importance of a country to overall world trade.…”

“…Entry costs are measured in units of GDP per capita for 1999. In specifications (1) and (3) we use the CTI openness indices and in specifications (2) and (4) we use the TI openness indices by Squalli and Wilson (2006 …”

Correcting the Size Bias in Trade Openness and Globalization Measures

“…The threshold of 2/3 signifies the arbitrariness of the correction; also, the index is not bounded below and could become negative. Squalli & Wilson (2006) suggest a composite index consisting of the product of two components -the conventional trade intensity measure and the ratio of the country's trade flow to the world's average trade flow. The second component aims to account for the fact that small economies have less trade flows in absolute terms.…”