Trade openness is the relationship of an economy with the rest of the world through trade.
Also, it has been defined as the ability to trade abroad taking into account the level of local production. In general, all the authors establish the relationship of domestic industry and foreign trade.
Trade openness indicators
These indicators take exports, imports or the sum of both to establish a relationship with the size of the domestic economy. Thus, two advantages can be obtained from these indicators:
- It allows you to make a comparison between different countries, regardless of the size of their economy.
- With the periodic calculation, it is possible to observe the evolution of the country's trade in relative terms.
Some indicators of commercial openness are the following:
|X / GDP||Openness measured by exports|
|M / GDP||Openness measured by imports|
|(X + M) / GDP||Openness measured by commercial exchange|
|((X + M) / 2) / GDP||Openness measured by the average of the commercial exchange|
Where, X = Exports, M = Imports and GDP = Gross Domestic Product
These indicators, expressed as percentages of the economic activity of each country, are read as follows:
- Values close to 1 indicate abundant commercial openness.
- Values close to 0 indicate little commercial openness.
These indicators tend to be lower in advanced economies, where the share of the other components of GDP is higher. These are: Consumption, public spending and investment.
Advantages and disadvantages of commercial opening
Certainly, trade openness is an important tool for economies. With this measure, the quality of life of citizens can be improved. In principle, some possible advantages are listed:
- It allows the specialization of local industries due to comparative advantage and being able to develop economies of scale.
- Encourage productivity.
- It generates a higher rate of economic growth.
However, just as it has advantages, you can also talk about the possible disadvantages:
- Destruction of national productive capacity in exchange for financing external productive capacity.
- Increase in local unemployment and fall in wages.
- The greater the flow of merchandise, the greater the risks to national security.
Finally, these and other elements will be present when carrying out the commercial opening. The success or failure will depend, to a large extent, on the level of planning with which the opening is carried out.
Business opening and economic development
The economic consensus indicates a significant share of trade in economic development. It has even been declared that trade openness is a necessary measure to achieve development. In other words, there is no economy that can develop in an autarkic way.
However, it is clear that trade liberalization does not immediately generate economic development. Nor is it a guarantee that it will be achieved just by having taken the measure. In addition, it must be accompanied by policies to promote productive activities and domestic technological development. This, to avoid the negative consequences of an unplanned commercial opening.