March 28, 2023

Trade and Financial Policy Openness in EMDE’s, 1975-2019

This entry was published on February 19, 2023 by Menzie Chinn.

Dealing with another project, I found this interesting correlation in between the IMFs “Measure of Aggregate Trade Restrictions” (MATR) (Estafania-Flores, Furceri, Hannan, Ostry and Rose (2022 )) and the Chinn-Ito (JDE 2006) step of financial openness (KAOPEN).


Figure 2: Y– average of Chinn-Ito KAOPEN, X10– typical MATR (inverted, divided by 10) for Emerging Market/Developing Economies (EMDEs). Greater worths of each variable indicate more openness. Source: Chinn-Ito, and MATR

Figure 1: Chinn-Ito KAOPEN vs MATR (inverted) for Emerging Market/Developing Economies (EMDEs). Higher values of each variable suggest more openness. Source: Chinn-Ito, and MATR.
Every one system change in KAOPEN is related to a 2.5 system change in MATR (inverted). This estimate is reasonably the same (2.4, t-stat = 98) with the addition of time fixed impacts (adj-R2 = 0.69). With this degree of connection, its often difficult to identify which variable is essential in numerous regression when both are consisted of on the right-hand man side (i.e., multicollinearity).
The time series pattern of the two variables typical (cross-country) value is likewise of interest.

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