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High Order Openness

Jean Imbs () and Laurent Pauwels ()

No 20200047, Working Papers from New York University Abu Dhabi, Department of Social Science

Abstract: We propose a new measure of high order trade, labeled HOT, based on the fraction of a sector's downstream uses that cross a border. Because it decomposes gross output, HOT evaluates a sector's exposure to foreign shocks abstracting altogether from observed direct trade, which we exploit to construct instruments for openness. For the same reason, we can evaluate HOT with precision for activities where measured direct trade is essentially zero, like some services. We compute HOT and its instruments for 50 sectors in 43 countries using recently released data on international input-output linkages. We compare its properties with conventional measures that all rely on observed direct trade. HOT correlates positively with conventional trade measures across countries, much less across sectors as many more are open according to our measure. HOT correlates significantly with sector productivity, growth, and synchronization; none of the conventional measures do. Once instrumented, we show high order openness causes productivity and synchronization, but not growth. JEL Codes: E32, F44

Pages: 51 pages
Date: 2020-06, Revised 2020-06
New Economics Papers: this item is included in nep-int, nep-mac and nep-tid
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https://nyuad.nyu.edu/content/dam/nyuad/academics/ ... papers/2020/0047.pdf First version, 2020 (application/pdf)

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Working Paper: High Order Openness (2020) Downloads
Working Paper: High Order Openness (2020) Downloads
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