DP17230 Measuring Openness
We introduce a measure of exposure to foreign shocks -openness- that computes the fraction of output subjected to foreign shocks at any order. The measure is easy to obtain for any sector with input-output data; It implies that openness is much more prevalent than often thought, especially in services. Theoretically the new measure correlates systematically with the response of productivity to foreign
shocks because it reflects high order linkages in output (rather than trade). Empirically it also correlates highly with productivity in an international sample of sector level data. None of these conclusions are true for conventional measures of openness.