Openness Analysis for Sweden and Italy

This document provides an analysis of the degree of openness for Sweden and Italy based on imports, exports, and GDP. It also includes technical analysis on absolute and comparative advantage. The data indicates that Sweden has a higher degree of openness than Italy, and that trade between the two countries declined in 2009 due to the credit crunch. The correlation coefficient between openness and GDP suggests that an increase in variety of exports leads to positive outcomes. The technical analysis shows that Sweden has an absolute advantage in shoes, while Italy has a comparative advantage in calculators.

Openness Analysis for Sweden and Italy 1
Openness Analysis for Sweden and Italy
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Openness Analysis for Sweden and Italy 2
Data Analysis
Step 1. Openness Calculation for Sweden.
Year Imports Exports GDP Openness
2003 115569667214.919 136563570483.41 331108912605.271 76%
2004 136829593544.612 165839241246.98
9
381705425301.746 79%
2005 150562149576.481 178466366032.83
8
389042298376.845 85%
2006 170530888292.537 202413461277.81
8
420032121655.688 89%
2007 201378943007.634 235410723797.12
4
487816328342.309 90%
2008 223811655110.68 256022211770.41
8
513965650650.119 93%
2009 166238600433.771 190992448195.66
8
429657033107.737 83%
2010 198855940938.572 225558175374.36
9
488377689564.921 87%
2011 236385732904.942 262875892617.43
6
563109663291.177 89%
2012 225122425913.15 251942584636.02
6
543880647757.404 88%
2013 227405041931.663 253492966272.75
3
578742001487.571 83%
2014 233644254994.144 258408185069.20
1
573817719109.402 86%
2015 202600740638.358 226807836425.28
7
497918109302.399 86%
Openness Calculation for Italy
Year Imports Exports GDP Openness
2003 359573814898.42 366681715575.62
1
1569649661399.55 46%
2004 422257635957.288 432726719642.41
4
1798314750434.57 48%
2005 458758985200.846 456711976122.37
3
1852661982340.5 49%
2006 525760381382.512 509513360933.38
3
1942633797516 53%
2007 612150287434.985 604235833561.45
6
2203053380782.92 55%
2008 663510180166.984 644649187051.41
4
2390729163615.06 55%
2009 505482634065.018 491149624895.80
4
2185160183384.27 46%
2010 577110275158.646 535264157365.61 2125058244242.92 52%

Openness Analysis for Sweden and Italy 3
5
2011 650487916300.45 614743407768.68
8
2276292404600.52 56%
2012 572068431748.317 592544766091.89
9
2072823157059.76 56%
2013 566795984552.661 614914896030.45
9
2130491320658.68 55%
2014 569203402621.559 630597873811.01 2151732868243.21 56%
2015 494802157999.841 548504391394.00
5
1832868490534.11 57%
Since openness is a measure that is derived from trading in goods and services, the degree
of openness is therefore calculated by adding total imports and exports of a given country
divided by Gross Domestic Product. In this regard, openness in Italy and Sweden is calculated by
getting the values of the imports, exports and GDP and applying the formula below to get the
results above (Gallego, 2019).
Openness = Imports+Exports
GDP
The results are then multiplied by 100 to get the percentages.
There are other alternatives that can be used to calculate openness other than trade flows.
These methods include computable general equilibrium model (CGE) and Global Trade Analysis
Project model (GTAP)
Step 2
From the graph above, it is clear that the percentages of both countries differ to large
extent. Sweden’s openness to trade indicates that it is performing better when compared to that
of Italy. Consequently, the difference in percentages between the countries are relatively constant
from 2003 to 2015. Further, trade between the two countries seem to have reduced in the year

Openness Analysis for Sweden and Italy 4
2009 which is attested by fall in the openness percentages from the data presented on the graph.
Also, the data indicates that there has been substantive growth over the years except for 2009
where trade between the two countries declined and the then began to increase gradually over the
years to 2015 (Databank.worldbank.org, 2019). The decline in credit crunch is responsible for
the decline in trade between the two countries (D’Onofrio, and Rousseau, 2018). This implies
that both countries were not able to get financing which was attributed to the credit crunch. This
is attested by the decline of banking activities after the collapse of Lehman Brothers in
September 2008. In this regard, countries were not ending each other and which also affected
domestic lending market. For this reasons, the degree of openness between both countries
declined.
Step 3
Using CORREL to calculate the correlation coefficient gives Sweden 0.58263 with
respect to openness and GDP. On the other hand, Italy’s correlation coefficient is given as
0.517697. In this regard, conclusive evidence indicates that the link between growth and degree
of openness in the long run between the two countries will lead to an improved economic growth
(El Khoury, and Savvides, 2006). Nonetheless, similar trade openness might not reflect the
different types of trade structures that exist. Moreover, the international economics insight allude
to the fact that in addition to ratios in trade, the quality of exports that are traded matter to the
growth of an economy. As a result, this may have a negative impact on trade in both Sweden and
Italy if they deal in low quality products and services. On the other hand, growth is enhanced if
the countries rely on specialized goods and services which can be attested by the correlation
coefficient (Iamsiraroj, 2016). An increase in variety of exports in both Sweden and Italy leads to
leads to positive outcome. The export ratio of both countries seems to have a positive impact on
GDP per capita (Databank.worldbank.org, 2019). This implies that the higher the variety of
exports, the higher the trade ratio.
Technical Analysis
Step 4
a) Sweden has an absolute advantage in shoes because it can produce more shoes per unit of
tie when compared to Italy hence its more efficient. In calculators, there is no absolute
advantage because both countries produce the same number of shoes per unit time of
production.
b) Sweden has a comparative advantage over Italy because it has a lower opportunity cost of
2/4=1/4 compared to opportunity cost of 2/1=2 in Italy. On the other hand, Italy has a
comparative advantage in calculators because it has a lower opportunity cost of ½
compared to 4/2=2 for Sweden.
c) Plotting the production possibility frontier will be the same because the opportunity cost
of the two countries are the same.

Openness Analysis for Sweden and Italy 5
d) Autarky price is calculated by the following formula.
PA= (P1/P2) Therefore, for Italy it will be calculated by the price of each unit which is not
provide divided by the price of shoes i.e P2/P1 while the price for Sweden is P2/P4.
e) The optimal consumption and production under autarky is given by the least opportunity
cost for each country which suggests that Italy should produce calculators and Sweden
should produce shoes as a result of efficiency.
References List
D’Onofrio, A. and Rousseau, P.L., (2018). Financial Development, Trade Openness and Growth
in the First Wave of Globalization. Comparative Economic Studies, 60(1), pp.105-114.
Databank.worldbank.org. (2019). DataBank. [online] Available at:
http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators)
[Accessed 4 Feb. 2019].
El Khoury, A.C. and Savvides, A., (2006). Openness in services trade and economic
growth. Economics Letters, 92(2), pp.277-283.
Gallego, L. (2019). Degree of openness | Policonomics. [online] Policonomics.com. Available
at: https://policonomics.com/degree-of-openness/ [Accessed 4 Feb. 2019].
Iamsiraroj, S., (2016). The foreign direct investment–economic growth nexus. International
Review of Economics & Finance, 42, pp.116-133.