The Bazaar Economy Hypothesis Revisited. A New Trade-Related Measure for Germany's International Openness

Ansgar Belke, Anselm Mattes and Lars Wang

Applied Economics Quarterly (formerly: Konjunkturpolitik), 2011, vol. 57, issue 1, 67-87

Abstract: In this paper we argue that traditional measures of openness of an economy usually overstate the actual degree of openness. This is due to the fact that traditional export or import shares are measured as a share of the gross domestic product. The former are expressed in gross terms, the latter in value added terms. In this way the actual interdependences between economies are overstated. We develop a new value based openness indicator that includes interregional and inter-industrial dependencies. Based on a Leontief production system and input-output tables we argue that export-induced imports of intermediate parts must be subtracted of the value of exports in order to obtain the real value added in the export sector. The same reasoning applies to the import side. We use these measures of actual openness to calculate openness indicators for Germany using GTAP data. We show that traditional measures of openness exaggerate the actual openness and argue that these new indicators are an important contribution to the debate about the German “bazaar economy”.

Keywords: degree of openness; openness to intra-regional trade; bilateral trade; value-added approach; input-output analysis; bazaar economy (search for similar items in EconPapers)
JEL-codes: C67 E20 F15 F41 (search for similar items in EconPapers)
Date: 2011
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Applied Economics Quarterly (formerly: Konjunkturpolitik) is currently edited by Ansgar Belke, Uwe Sunde and Winfried Koeniger

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