Trade openness

The ratio of trade to GDP – an indicator of trade ‘openness’ – has increased for most  trading nations, and is a result of globalisation, and trade liberalisation.

According to the UK’s Department for Business, Innovation and Skills (BIS) the trade to GDP ratio increase from 51.6 to 61.6 between 2003 and 2013.  However, according to the World Bank, UK trade openness fell to 59% in 2014.

Trade openness is calculated using the following equation:

Trade openness equation image

Benefits of trade openness

It is argued that trade openness brings many economic benefits, including increased technology transfer, transfer of skills, increased labour and total factor productivity and economic growth and development.