6.1 Integration with the global
economy About the data
Definitions
Data sources
About the data
The growing importance of trade in the worlds economies is one indication of
increasing global economic integration. Another is the increased size and importance of
private capital flows to developing countries that have liberalized their financial
markets. The indicators in the table highlight key features of the ongoing expansion of
global markets in goods and capital. For three of the indicators GDP measured in
purchasing power parity (PPP) terms has been used in the denominator to adjust for
differences in domestic prices. (No adjustment has been made to the numerators because
goods and capital exchanged on international markets are assumed to be valued at
international prices.) This is a conservative measure: because the GDP of many developing
countries is larger in PPP terms than when converted at official exchange rates, the
resulting ratios tend to be lower. Still, there is ample evidence of the increasing
importance of trade and international capital flows.
The growth of services has also affected the historical record. Compared with the
levels achieved at the end of the last century, trade in goods appears to have declined in
importance relative to GDP, especially in economies with growing service sectors.
Deducting value added by services from GDP thus provides a better measure of the relative
size of merchandise trade than physical output, although it neglects the growing services
component of most goods output.
Trade in services, traditionally called invisibles, is becoming an important element of
global integration. The difference between the growth of real trade in goods and services
and the growth of GDP helps to identify economies with dynamic trade regimes.
Tariffs provide one indication of an economys openness, but they are not
definitive. Countries typically have an array of tariffs that are applied to different
partners. The mean tariffs shown in the table are based on applied most-favored-nation, ad
valorem rates, but lower rates may apply to regional trading partners and others. Many
countries also use an array of specific tariffs (based on physical units), nontariff
barriers, and export taxes and subsidies to regulate trade.
In the financial account of the balance of payments inward investment is recorded as a
credit and outward investment as a debit. Thus net flows, the sum of credits and debits,
represent a balance in which many transactions are canceled out. Gross flows are a better
measure of integration because they measure the total value of financial transactions
during a given period. The investment indicators in the table were constructed from data
recorded at the most detailed level available. Higher-level aggregates tend to be affected
by the netting out of credits and debits and so produce a smaller total. The comparability
of these indicators between countries and over time is affected by the accuracy and
completeness of balance of payments records and by their level of detail.
Definitions
Trade as a share of PPP GDP is the sum of merchandise exports and
imports measured in current U.S. dollars divided by the value of GDP converted to
international dollars using purchasing power parity conversion factors. Trade
in goods as a share of goods GDP is the sum of merchandise exports and imports divided
by the current value of GDP in U.S. dollars after subtracting value added in services.
Growth in real trade less growth in real GDP is the difference between
annual growth in trade of goods and services and growth in GDP. Growth rates are
calculated using constant price series taken from national accounts, expressed in
percentages. Mean tariff is the simple (unweighted) average of applied
most-favored-nation tariffs imposed by the country. Gross private capital
flows are the sum of the absolute values of direct, portfolio, and other investment
inflows and outflows recorded in the balance of payments financial account, excluding
changes in the assets and liabilities of monetary authorities and general government. The
indicator is calculated as a ratio to GDP converted to international dollars using
purchasing power parities. Gross foreign direct investment is the sum
of the absolute values of inflows and outflows of foreign direct investment recorded in
the balance of payments financial account. It includes equity capital, reinvestment of
earnings, other long-term capital, and short-term capital. Note that this indicator
differs from the standard measure of foreign direct investment (see table 6.8), which
captures only inward investment. The indicator is calculated as a ratio to GDP converted
to international dollars using purchasing power parities.
Data sources
Data on merchandise trade are from the International Monetary Funds (IMF) Direction of Trade Statistics. Data on GDP in
PPP terms comes from the World Banks International Comparison Programme database.
Data on real trade and GDP growth come from the World Banks national accounts files.
Mean tariffs were calculated using the SMART (Software for Market Analysis and
Restrictions on Trade) system developed jointly by the World Bank and the United Nations Conference on Trade and Development. Gross private
capital flows and foreign direct investment were calculated from the IMFs Balance of
Payments Statistics database.
THE WORLD BANK METHODOLOGY:
----- On External Debt
Definitions
Debt
indicators
----- On WORLD DEVELOPMENT INDICATORS
Size of the economy
Quality of life
Development progress
Trends in long-term development
Long-term structural change
Key indicators for other economies
Population
Land use and deforestation
Growth of output
Credit, investment and expenditures
Integration with the global economy
Back to Research Methods |