Measuring Openness to Trade / Michael E. Waugh, B. Ravikumar.

Format:

Book

Author/Creator:

Waugh, Michael E.

Contributor:

National Bureau of Economic Research.

Ravikumar, B.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22147.

NBER working paper series no. w22147

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

In this paper we derive a new measure of openness--trade potential index--that quantifies 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 correlate weakly with trade costs. Thus, our measure of openness is informative about the underlying trade frictions.

Notes:

Print version record

April 2016.