Dear Badia! I think that you can use this ratio for your research. Perhaps you should find the difference between GDP and goods value without the cost of services. It does not matter if it's domestic or international trade.

Hi Badia,

Yes I think the ratio is appropriate to measure the openness. I've seen that this ratio is used in some research and it is acceptable.

Be careful about the measurements of trade openness, there are many papers on this topic.

I will second Vitalii and would suggest to read literature

Thank you all for your reaction, for VITALII, you mean to subtract the contribution of trade in goods from GDP?

For Elma Satrovic and Ihtisham ul Haq, unfortunately literature is really poor in the subject.

In last for S.C Thushara, it is true this ratio is often used but for the case of services, a lot of papers prefer to use the famous Hoekman indexes

Badia Farid What I meant was, to measure openness, the ratio you've mentioned is used in the literature and it makes sense. It measures how far you're connected with the rest of the world (In other words, economic globalization). If you just want to measure services openness you could consider only the services exports and services imports. But I am not quite sure whether it makes sense in practice.

Hello and No.

No, firstly for conceptual reasons: the indicator you mention measures macroeconomic opennes (exposure of the domestic economy to external schocks) and not the degree of openness of the trade polic (extent of the tarif and non-tariff barriers). OECD or World Bank are working on a trade in service restrictiveness index. Leading economists in this field are S. Miroudot (OECD) and A. Matoo (World Bank). I suggest you google and look at them.

No, secondly, for statistical reasons: balance of paiements data measure only a part of trade in services (mode 1 and 2, basically). In modern economies, a lot goes through mode 3 and 4 types: the physical presence of the service exporter (a firm in the first case, an individual, in the second one) in the country importing the service. Mode 3 in particular represents a large part of the USA services exports (financial services). Mode 4 would be very important for India (consultants in IT). Look at WTO statistics, which is providing extended statistics on trade in services.

Cheers,

Hello Monster Hubert Escaith,

I totally agree with your very precise analysis, that's why I liked sharing this issue with the scientific community, in order to make sure that this ratio is really or not a tool for my research. My readings of the literature have shown me that there is not until now a universally recognized method for measuring the liberalization of trade in services, apart from the Hoekman index method which seems to me relatively difficult to measure. apply for the case of my study.

Badia Farid : You are entirely right. Most (if not all) restrictiveness indexes in trade in services have to derive from some indirect methods, pooling together gravity models plus additional information taken from analysing GATS commitments. Difficult to implement in a simple way. Not like in goods, where you can use tariffs (average and distribution).

Perhaps a "simpler" approach would be to count the GATS commitments for each WTO member and build an index out of that. The index could be weighted by the (inverse) of the frequency of adopting such a commitment (a commitment taken by all WTO members will have a low weight, a commitment taken only by a few members would have a high weight).

Trade openness is a dynamic thing to measure and many factors affect it. Besides the quantitative factors, you may look into the qualitative factors that may at times play a greater role in measuring the trade openness of a country such as the political will of a country. That is why as Hubert Escaith mentioned, some indirect methods of pooling some models together or looking into their outcomes may help you measure better.

Let me add a few words on Hubert Escaith's first "No" of 13 days ago, i.e. on conceptual reasons.

Although it seems that the custom to define "degree of openness" (for macroeconomic openness) by the formula "Exports + Imports / GDP", it is by no means an ideal index that measures "openness of a country".

The reason can be illustrated by the following thought experiment:

Suppose a world composed of A, B, and many other countries. A and B have the same stipulations on trade (tariffs and non-tariff restraints) with each other and with other third countries. Suppose A and B become unified as a single state, but no change in trade policies was made. All concerned stipulations (including cultural barriers) are the same as before the unification. Even though, the "degree of openness" will necessarily decrease because (1) the total GDP of A and B union state increases because it is now the sum of A and B's GDP, and (2) Exports and imports of the A and B union will be smaller than the sum of Exports and Imports of A and B before the unification, because trades between A and B will be eliminated from the external trade.

What I can say is that the degree of openness defined by "Exports + Imports / GDP" is only an extremely rough index of "openness". It would be better to change the definition of "degree of openness" by a method suggested by Hubert.