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 4 of 22
The real wordsTheory

Periods two and three

1945 to 1980The dismantling of heavy trade protection led to a rapid increase in international trade. Your note adds that the protection being dismantled was what the Great Depression had put up.
1980 to the presentThe most pervasive and dramatic period. Fuelled by improvements in telecommunications and transportation, and by the elimination of restrictions on capital flows, which led to massive international capital movements. Most countries in the world participated.

One line each: war ended the first, protection ended and trade grew in the second, and technology plus free capital drives the third.

← BackContinue →