Question

The openess is provided. Using a graph of Openness (as a percentage) versus time, explain in 200 words how openness has changed for these countries from 2001 to 2014.

Put Paraguay and Poland in the same graph and make sure your graph is properly labelled. Please type it up instead of handwriting if possible.

Answer 1

Solution:

“Openness” is the measure of degree of integration of the domestic economy to the world economy. The index of openness is the ratio of trade to GDP, where GDP is the measure of total production of a nation during a given period of time.

We measure openness as a measure of trade liberalization for countries namely Paraguay and Poland from 2001 to 2014. The trend is openness (as a percentage) has been rising gently for both the countries until 2004. The openness percentage for Paraguay is higher than that of Poland until 2013. In mid-2008 till 2009, the trend is openness has been falling occurring to the global Financial crisis in 2008 From 2010 onwards Poland and Paraguay degree of openness as a percent has shown a contrast The trend in openness since 2010 for Paraguay has dipped in the downward direction till 2010. On the contrary the degree of openness for Poland since 2010 has been on the rise. Thus we can conclude that Paraguay policy making strategies are limiting the interaction with the outside world whereas Poland is moving towards liberalization as is degree of openness has extended that of Paraguay in 20.14

Openness does not tell us about a country’s trade policies and countries with higher openness do not necessarily have lower trade protection. This is because openness is a measure of foreign trade relative to domestic production. If a country rely more on domestic product its index of openness will be lower, at the same time it can have lower trade protection and lower domestic demand for foreign goods will decrease the index. In general, it has been observed that smaller countries have larger index of openness. This is because they trade more and cannot produce a wide range of product on their own. Thus, the openness index measures the relative importance of international trade in nation’s economy, but it does not provide any direct information about trade policies or trade barriers.

The “openness” is measured by index of openness, represented as follows:

The figure below gives the openness of the two economy Paraguay and Poland:

From the figure above Paraguay more open than the economy of Poland. However both the economy showed the similar trend in openness during the said time period. Both economy become more open as time progress. This is evident from the both upward sloping index of openness curve above.