The Degree Of Economic Openness In China

Most of literatures that seek to explain the degree of economic openness in China hold to use trade dependency ratio as the only proxy of economic openness. In this context, the main limitation of the indicator is that it does not necessarily relate to the trade policy, thus conventionally calculated trade ratio would typically overstate the degree of economic openness. This paper constructs an analytical framework with theoretical foundation, and employs factor analysis to gauge the degree of economic openness in China for the period 1978-2004. Nine indexes are used, include: trade dependency ratio (based on economic activities), black market premium, FDI openness, real tariff rates, population density, real price distortion index, nominal protection rate, financial openness, and the ratio of industrial SOE gross output value.The empirical results show that the population density is found to have a robust positive affects on China's economic openness, and the other variables are also statistically significant In the other hand, the results also reveal that from the first year of economic openness until 2004, China's degree of economic openness tends to increase progressively (the average growth was about 11.8%). In 2004 the degree of economic openness in China was nearly 25.23%, these empirical observations are basically consistent with China's recent economic performance, and may account for the future observation between China's economic openness and growth.