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Sem 5 Prep
← Intl TradeThe international economy and the standard of living

Formulas for this chapter

Interdependence (trade openness)

Interdependence = (Imports + Exports) / GDP

Any question asking how dependent a country is on trade, or comparing two countries' reliance on it. Add the two flows; never net them, because that gives the trade balance instead.

Imports
Value of goods and services bought from abroad in the period
Exports
Value of goods and services sold abroad in the same period
GDP
Total value of all goods and services produced in the nation in a year

Growth of the trade-to-production ratio

New ratio = old ratio x (1 + trade growth) / (1 + production growth)

When a question gives separate growth rates for world trade and world production and asks what happens to interdependence. Divide the growth factors; subtracting the rates is only an approximation.

Trade growth
Annual growth rate of world trade, as a decimal
Production growth
Annual growth rate of world production, as a decimal
Step 1 of 22
The ideaTheory

Two shops on the same street

One shop sells only what it grows in its own back garden. The other buys from wherever things are cheapest and sells to whoever pays most.

The second shop is richer and more exposed. Both at once. A bad harvest never ruins it, but a shipping strike can.

Countries face the same trade-off, and this chapter gives you the one ratio that measures how far down that road a country has gone.

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