Question

What are the alternative ways to calculate openness other than using trade flows? Justify it.

Answer 1

Answer:

There are a number of ways to measure the international economic integration of a country.

One of these ways is trade openness, measured as the sum of imports and exports divided by GDP.

calculation openness using trade flows:

Trade openness indicator is the % of GDP as an international trade or international trade to GDP ratio. The bigger % value of indicator, reflects that the country is more open to the trade.

But, % of the trade as a part of the GDP, does not explain the actual value of the trade.

For example, a smaller dollar value of international trade can be the bigger % share of the GDP of a small country, but a bigger dollar value of international trade can be the smaller % share of the GDP of a big economy.

Here, the indicator fails to read the trade openness of the economies across the world unless it is coupled with the size of the international trade.

Further, the openness indicator does not explain the sector specific openness and it is the limitations as it sector specific trade openness could give a better idea.

Hence this indicator has limited capabilities in explaining the trade openness.

The alternative to free trade is any of the many tools of protectionism economies have created throughout the years.

Other than that there's a great deal of particular approaches governments can establish to control exchange streams—levies, shares, send out sponsorships, formality—yet all in all, the contrasting option to facilitated commerce is just protectionism.

alternative measures may be used to indicate the extent of integration:

The number of bilateral and regional trade agreements can be used to identify the trade openness.

Further, weighted score of the sector specific trade openness with the size of the international trade (sector specific) can better explain the trade openness.