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This document analyzes the correlation between different measures of trade openness using data from 1980 to 2004. It finds that while revenue tariffs and statutory tariffs differ in magnitude, they are highly correlated at 0.63. Both measures are negatively correlated with trade shares, with correlations between -0.2 and -0.3, indicating that higher tariffs are associated with lower trade volumes relative to GDP. The different openness measures are all significantly correlated with one another to some degree.

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109 views1 page

File 0087 PDF

This document analyzes the correlation between different measures of trade openness using data from 1980 to 2004. It finds that while revenue tariffs and statutory tariffs differ in magnitude, they are highly correlated at 0.63. Both measures are negatively correlated with trade shares, with correlations between -0.2 and -0.3, indicating that higher tariffs are associated with lower trade volumes relative to GDP. The different openness measures are all significantly correlated with one another to some degree.

Uploaded by

Ed Z
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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4082 Ann Harrison and Andrés Rodríguez-Clare

Table 3 All countries

Correlation between different openness measures


Revenue tariffs Openness
Exchange Statutory Real
(Trade taxes/ (X þ M/ DFI/GDP
rate Tariffs openness
Trade volumes) GDP)

Revenue tariffs 0.0452 1.0000


(Trade taxes/ 283 919
Trade volumes)
Statutory Tariffs !0.0314 0.6271# 1.0000
274 666 716
Openness !0.0172 !0.2459# !0.2470# 1.0000
(X þ M/GDP) 291 561 464 607
Real openness !0.0662 !0.2200# !0.2970# 0.8921# 1.0000
293 579 461 566 630
DFI/GDP !0.0066 !0.2501# !0.3016# 0.3708# 0.4129# 1.0000
281 559 445 567 576 607

Notes: Data from World Bank. Time period includes 1970–2004. The asterisk indicates significant at the 5% level.
Number of observations are underneath correlation coefficient.

distance to neighbors and trading partners, country size, exchange rate movements,
terms of trade changes, and barriers to entry. Consequently, simply using trade volumes
to proxy for changes in trade policies may be misleading. We evaluate the relationship
between these different openness measures in Table 3. We present correlations
between statutory tariffs, trade taxes as a percentage of trade, two measures of trade
volumes, the nominal exchange rate, and the ratio of foreign investment inflows to
GDP using annual data from 1980 to 2004. For trade shares, we include both nominal
and real trade shares, where real trade shares are defined as the ratio of trade to GDP in
constant prices from the Penn World Tables (version 6.1). Table 4 repeats the same
exercise, but restricts the sample to developing countries. The correlations reported
in Tables 3 and 4 highlight the following:
• Although Table 2 indicates a big difference in magnitude between the ratio of
tariff revenues to trade and statutory tariffs, the correlation coefficient reported in
Table 3 between the two measures is actually quite high at 0.63 and statistically
significant.
• There is a significant negative correlation between trade shares and tariffs. The cor-
relation with nominal openness is !0.25. The correlation with real openness about
the same, between !0.2 and !0.3, depending on which measure of tariffs is used.

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