Skip to content
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 2 of 22
The real wordsTheory

Three flows

The deck's first substantive slide says a globalizing world provides both opportunities and challenges, through three flows. Learn them in this order.

  • Flow of goods and services
  • Flow of labour and jobs
  • Flow of financial instruments and currency

Your note maps the same three onto an open economy: the output market carries goods and services, the financial market carries capital, and the labour market carries human capital.

← BackContinue →