How Important is International Trade for a Country Really? – A Value-Added Based Approach to Measure Economic Openness

The importance of a country’s international trade is relevant for a multitude of questions in the economic research, since international dependences influence most economical variables of a country. Usually, the concept of openness degree of an economy is used to represent this international interlocking of trade, where previous studies applied mainly output-oriented operationalizations of the openness degree. But most of the designed economy openness indicators are not able to characterize the share of traded goods and services of the production in a sufficient way. Which is true especially for one of the most frequently applied economy openness indicators, being designed by exports in relation to gross domestic product. For example, when this measure exceeds 100 percent, then this implies a negative share of domestic non-traded goods and services. Hence, the aim of this paper is to develop new input-oriented economy openness indicators and to compare them with a selection of established output-oriented measures for 53 countries. This is done by building a multiregional input-output model, offering the necessary instruments for both approaches to design economy openness indicators. Thus, alternative ways to indicate the importance of international trade for an economy are depicted. The results show that not merely different consequences of previous analyses are likely to be possible, but also potential deviations on their recommendations for the economic policy might occur. JEL classification: C67, E20, F15, F41