Economists conventionally use the ratio of exports plus imports relative to gross national product or national income as an indicator of the degree of “openness” of an economy. This measure, frequently referred to as the trade ratio, is a convenient method both for measuring how the degree of openness of an economy changes over time and for comparing the degree of openness of different economies. Intercountry comparisons, of course, are somewhat problematic because ceteris paribus “large” countries have lower trade ratios than “small” countries. There are several reasons for this. First, large countries are less likely to depend on imports of minerals and other raw materials. Second, they are more likely to have levels of domestic demand sufficiently large to take advantage of economies of scale, which exist in some types of manufacturing, without exporting part of the output. Finally, relatively higher transport costs in large countries tend to provide domestic producers a greater degree of natural protection against foreign competition (Perkins and Syrquin, 1, 705–22).

In the text of this study I have avoided using estimates of China's trade ratio to measure the degree of openness of the Chinese economy. This is because of the uncertainties involved in measuring China's trade volume and its gross national product (GNP) in a common currency. China compiles its trade data in U.S. dollars and its GNP in terms of domestic currency. Although it is a simple matter to convert these to a common currency by dividing the reported GNP in domestic currency by the official exchange rate, it is a dubious procedure, particularly for an economy such as China's in which the relative prices of nontraded goods and particularly services are fixed by the government at unusually low levels.