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Measuring Openness: VADE, Not Trade

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  • Mehrene Larudee

Abstract

The ratio of trade (exports plus imports) to GDP is often used to gauge the orientation of a country's economic activity to the world market; but GDP measures value added, whereas trade is measured as gross value and double-counts imported inputs embodied in exports. High trade/GDP ratios can thus mislead policymakers, especially when low domestic-content (DC) assembly production displaces high DC traditional exports, as in Mexico and the Caribbean in the 1980s and 1990s. This paper proposes a better measure of openness, which is the ratio of value added destined for exports (VADE) to GDP. It outlines methods for making both rough and more precise estimates of VADE, and presents illustrative results for China, the Dominican Republic and Mexico. In all of these cases VADE/GDP is no more than one-third, and probably closer to one-quarter, of trade/GDP.

Suggested Citation

  • Mehrene Larudee, 2012. "Measuring Openness: VADE, Not Trade," Oxford Development Studies, Taylor & Francis Journals, vol. 40(1), pages 119-137, September.
    • Handle: RePEc:taf:oxdevs:v:40:y:2012:i:1:p:119-137
    DOI: 10.1080/13600818.2011.648372
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    Cited by:

    1. Rosario Cervantes-Martínez & Jorge Villaseñor-Becerra & Martín Romero-Morett, 2016. "NAFTA trade (and some extra NAFTA trade) in value added and its distribution, 1995–2011," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 5(1), pages 1-22, December.
    2. Jingyi Wang & Shuguang Liu & Yubin Zhao, 2023. "Spatial–Temporal Evolution and Driving Factors of Economic Dual Circulation Coordinated Development in China’s Coastal Provinces," Sustainability, MDPI, vol. 15(14), pages 1-21, July.
    3. Wen Chen & Lizhi Xing, 2022. "Measuring the Intermediate Goods’ External Dependency on the Global Value Chain: A Case Study of China," Sustainability, MDPI, vol. 14(7), pages 1-21, April.

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