Measuring Openness to Trade

Michael E. Waugh, B. Ravikumar

NBER Working Paper No. 22147
Issued in April 2016, Revised in July 2016
NBER Program(s):EFG, IFM, ITI

In this paper we derive a new measure of openness—trade potential index—that quantifies potential gains from trade as a simple function of data. Using a standard multicountry trade model, we measure openness by a country’s potential welfare gain from moving to a world with frictionless trade. In this model, a country’s trade potential depends on only the trade elasticity and two observable statistics: the country’s home trade share and its income level. Quantitatively, poor countries have greater potential gains from trade relative to rich countries, while their welfare costs of autarky are similar. This leads us to infer that rich countries are more open to trade. Our trade potential index correlates strongly with estimates of trade costs, while both the welfare cost of autarky and the volume of trade correlate weakly with trade costs. Thus, our measure of openness is informative about the underlying trade frictions.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22147

Published: Michael E. Waugh & B. Ravikumar, 2016. "Measuring Openness to Trade," Journal of Economic Dynamics and Control, . citation courtesy of

Users who downloaded this paper also downloaded* these:
Limão w22138 Preferential Trade Agreements
Bagwell and Staiger w22087 The Design of Trade Agreements
Hsieh, Li, Ossa, and Yang w22069 Accounting for the New Gains from Trade Liberalization
Grossman w22070 The Purpose of Trade Agreements
Leamer Measures of Openness
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us