High Order Openness

54 Pages Posted: 8 May 2020 Last revised: 16 Jun 2020

See all articles by Jean M. Imbs

Jean M. Imbs

Paris School of Economics (PSE); NYU Abu Dhabi; Centre for Economic Policy Research (CEPR)

Laurent L. Pauwels

NYU Abu Dhabi; The University of Sydney; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

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Date Written: April 2020

Abstract

We propose a new measure of high order trade, labeled HOT, based on the fraction of a sector's downstream uses that cross a border. Because it decomposes gross output, HOT evaluates a sector's exposure to foreign shocks abstracting altogether from observed direct trade, which we exploit to construct instruments for openness. For the same reason, we can evaluate HOT with precision for activities where measured direct trade is essentially zero, like some services. We compute HOT and its instruments for 50 sectors in 43 countries using recently released data on international input-output linkages. We compare its properties with conventional measures that all rely on observed direct trade. HOT correlates positively with conventional trade measures across countries, much less across sectors as many more are open according to our measure. HOT correlates significantly with sector productivity, growth, and synchronization; none of the conventional measures do. Once instrumented, we show high order openness causes productivity and synchronization, but not growth.

Keywords: Global supply chains, growth, Openness Instrument, Openness Measure, productivity, Synchronization

JEL Classification: E32, F44

Suggested Citation

Imbs, Jean M. and Imbs, Jean M. and Pauwels, Laurent L., High Order Openness (April 2020). CEPR Discussion Paper No. DP14653, Available at SSRN: https://ssrn.com/abstract=3594284

Jean M. Imbs (Contact Author)

NYU Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Laurent L. Pauwels

NYU Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

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