About the data
Definitions
Data sources

About the data

The growing importance of trade in the world’s 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 economy’s 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 Fund’s (IMF) Direction of Trade Statistics. Data on GDP in PPP terms comes from the World Bank’s International Comparison Programme database. Data on real trade and GDP growth come from the World Bank’s 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 IMF’s 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