Measuring Openness to Trade

B Ravikumar and Michael Waugh

No 2016-3, Working Papers from Federal Reserve Bank of St. Louis

Abstract: In this paper we derive a new measure of openness?trade potential index?that quantifies the potential gains from trade as a simple function of data. Using a standard multicountry trade model, we measure openness by a country?s potential welfare gain from moving to a world with frictionless trade. In this model, a country?s trade potential depends on only the trade elasticity and two observable statistics: the country?s home trade share and its income level. Quantitatively, poor countries have greater potential gains from trade relative to rich countries, while their welfare costs of autarky are similar. This leads us to infer that rich countries are more open to trade. Our trade potential index correlates strongly with estimates of trade costs, while both the welfare cost of autarky and the volume of trade exhibit correlate weakly with trade costs. Thus, our measure of openness is informative about the underlying trade frictions.

Pages: 26 pages
Date: 2016-07-21
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2016/2016-003.pdf Full text (application/pdf)

Related works:
Journal Article: Measuring openness to trade (2016)
Working Paper: Measuring Openness to Trade (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2016-003

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2016.003

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().