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This report examines the trade openness of Argentina and El Salvador over a 17-year period, from 1998 to 2014, alongside a technical analysis of their trade advantages in producing hammers and widgets.
The table below presents the annual trade openness as a percentage for Argentina and El Salvador, highlighting their exposure to international trade over the 17-year period.
| Year | Argentina Openness (%) | El Salvador Openness (%) |
|---|---|---|
| 1998 | 60.87 | 23.35 |
| 1999 | 60.99 | 21.38 |
| 2000 | 68.71 | 22.62 |
| 2001 | 65.89 | 21.85 |
| 2002 | 65.92 | 41.75 |
| 2003 | 68.24 | 40.64 |
| 2004 | 69.78 | 40.69 |
| 2005 | 69.72 | 40.55 |
| 2006 | 73.46 | 40.43 |
| 2007 | 77.62 | 40.95 |
| 2008 | 80.67 | 40.40 |
| 2009 | 66.07 | 34.06 |
| 2010 | 73.54 | 34.97 |
| 2011 | 79.28 | 35.21 |
| 2012 | 77.65 | 30.53 |
| 2013 | 80.45 | 29.33 |
| 2014 | 78.11 | 28.41 |
Openness is often presented as a percentage despite the rare occasion of having to calculate the correlation of openness with another variable.
It is then expressed in decimal form. Openness is calculated by utilizing the following formula:
Opennesst=(GDPtExportst+Importst)×100
After obtaining data from the World Bank’s World Development Indicators, the imports and exports of goods and services were recorded in $US as was the GDP for the respective country. For instance, Italy’s openness for the year 2003 of 46.27% was derived by the following calculation.
Imports = $ 359,573,814,898.40 , Exports = $366,681,715,575.60 and GDP = $1,569,649,661,399.60 (source: World Bank Data)
= ($359,573,814,898.40 + $366,681,715,575.60) / ($1,569,649,661,399.60) x 100 = 46.27% (2d.p).
The larger the ratio is (percentage), the more exposed the country is to international trade.
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A prime example of a small country utilising external trade is Sweden’s openness in 2015. The figure of 86.24% testifies that as they cannot produce enough internally, more trade has to be external. Openness is a relative factor in indicating whether or not a country’s international trade has improved. To a degree, it could also be seen as the globalisation of an economy.
Openness is often presented as a percentage despite the rare occasion of having to calculate the correlation of openness with another variable. It is then expressed in decimal form. Openness is calculated by utilizing the following formula:
Openness t = (Exports t + Imports t ) / (GDP t ) x 100
After obtaining data from the World Bank’s World Development Indicators, the imports and exports of goods and services were recorded in $US as was the GDP for the respective country. For instance, Italy’s openness for the year 2003 of 46.27% was derived by the following calculation.
Imports = $ 359,573,814,898.40 , Exports = $366,681,715,575.60 and GDP = $1,569,649,661,399.60 (source: World Bank Data)
Openness 2003 = ($359,573,814,898.40 + $366,681,715,575.60) / ($1,569,649,661,399.60) x 100 = 46.27% (2d.p).
The larger the ratio is (percentage), the more exposed the country is to international trade. A prime example of a small country utilising external trade is Sweden’s openness in 2015. The figure of 86.24% testifies that as they cannot produce enough internally, more trade has to be external.
For instance, Argentina openness for the year 1998 of 60.87% was derived by the following calculation.
Imports = $38,667,300,000
Exports = $31,137,200,000
GDP = $298,948,000,000
Source: World Bank Data
Openness1998 = ($31,137,200,000 + $38,667,300,000) / ($298,948,000,000) x 100 = 60.87% (rounded to 2 decimal place)
The larger the ratio (%) is, the more exposed the country is to international trade. Openness is a relative factor in indicating whether or not a country’s international trade has improved. To a degree, it could also be seen as the globalisation of an economy. Another method that could be used to calculate trade openness that does not involve trade flows is the Computable General Equilibrium (CGE) analysis. The CGE analysis is the standard model used worldwide and has the advantage of taking into consideration economy-wide effects of changing restrictions on trade.
Argentina has increased its openness from the beginning of the analysis and peaking at the end. Similarly, El Salvador has increased its openness when comparing the two end points. However, El Salvador peaked at 2008 while Argentina peaked at 2002. El Salvador’s openness dropped in 2009 after its peak while Al Salvador had its drop in 2001 before having it’s peak.
Argentina had a rapid growth in openness for the year 2001 to 2002 while El Salvador openness grew steadily over the period of 8 years, 2001 to 2008. El Salvador openness followed closer to the trendline when compared to Argentina. From the data, El Salvador faced a higher GDP growth rate than Argentina.
Correlation co-efficient measures the relationship between two variables in respect of the correlating strength associated ranging from -1.0 to 1.0. The variables, ‘GDP per capita’ and ‘openness’ were taken into calculation as our two variables. The ‘CORREL” command derived us with the following results:
Argentina -0.42
El Salvador 0.86
When interpreting the co-efficient, both the strength and direction is taken into consideration. Argentina has a negative correlation meaning as the value of one variable increases, the other variable decreases thus there is no direct relationship between openness and economic development. An increase of 1% in openness in Argentina will lead to a decrease of 0.42% in GDP per capita. A negative relationship also shows that as GDP rises, poverty level falls.
On the other hand, El Salvador has a positive correlation meaning as the value of one variable increases, the other variable also tends to increase thus that there is a direct relationship between openness and economic development. An increase of 1% in openness in El Salvador will lead to an increase of 0.86% in GDP per capita. In other words, El Salvador has a larger economic development than Argentina
For the strength of the variables, Argentina’s co-efficient of -0.42 is regard as a regular and El Salvador’s co-efficient of 0.86 is regarded as strong. When comparing both countries, Argentina will experience a larger impact if openness were to change.
Argentina and El Salvador exhibit distinct patterns in trade openness and economic development correlations. While Argentina demonstrates a higher openness percentage, El Salvador shows a stronger positive correlation between openness and GDP per capita, indicating a more pronounced impact of trade on its economic development. The technical analysis further highlights each country's comparative advantages, suggesting beneficial trade strategies for both nations in the production of hammers and widgets.
International Trade Analysis: Argentina vs El Salvador. (2024, Feb 18). Retrieved from https://studymoose.com/document/international-trade-analysis-argentina-vs-el-salvador
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