PCA
Introduction
The openness of an economy is determined by the economy’s trade with external economies, both import and export, over its own GDP. The formula is as follows:
Openness of Economy = (Import + Export)/GDP of Economy
The openness of Canada and Mexico is charted in the graph below:
As seen from the graph, Canada experienced a steady growth in openness from 1985 to 2000. However, since 2001, it has continued to decline over the next few years. Mexico, on the other hand, only experienced a tumble in 1994, and an upward climb from then on. In 2010, Mexico’s openness has overtaken Canada’s.
The correlation coefficient, or r, of Canada is at 0.20, indicating a weak linear correlation between the country’s openness and economic development. By having a weak linear correlation means that the openness in Canada has little or no effect over its GDP growth. Conversely, for Mexico, the r is at 0.78, which indicate a strong linear correlation between the country’s openness and economic development. As such, the openness of Mexico has a very strong impact on its GDP growth. Conclusively, it could be implied that Mexico is country that relies on import and export more than Canada.
As a developed country, Canada’s economy has since transformed from one that is dependent on manufacturing and mining, to one that is mainly dominated by service, which constitute 72% of the country’s GDP (Andrews-Speed et al, 2012). Moreover, international trade also made up a portion of the country’s economy, with the U.S. being its largest importer and exporter, at 46% and 62% respectively, in 2012 (Simoes, 2014). Hence, with the economy crisis that affected the U.S. since the early 2000s, which includes the Dot Com bubble (Kindleberger, 2005), September 11 (National Commission on Terrorist Attacks Upon the United States, 2004), and Subprime Mortgage Crisis (The Financial Crisis Inquiry Commission, 2011), the growth of exports and imports were not keeping up with the economic growth (GDP)
The openness of an economy is determined by the economy’s trade with external economies, both import and export, over its own GDP. The formula is as follows:
Openness of Economy = (Import + Export)/GDP of Economy
The openness of Canada and Mexico is charted in the graph below:
As seen from the graph, Canada experienced a steady growth in openness from 1985 to 2000. However, since 2001, it has continued to decline over the next few years. Mexico, on the other hand, only experienced a tumble in 1994, and an upward climb from then on. In 2010, Mexico’s openness has overtaken Canada’s.
The correlation coefficient, or r, of Canada is at 0.20, indicating a weak linear correlation between the country’s openness and economic development. By having a weak linear correlation means that the openness in Canada has little or no effect over its GDP growth. Conversely, for Mexico, the r is at 0.78, which indicate a strong linear correlation between the country’s openness and economic development. As such, the openness of Mexico has a very strong impact on its GDP growth. Conclusively, it could be implied that Mexico is country that relies on import and export more than Canada.
As a developed country, Canada’s economy has since transformed from one that is dependent on manufacturing and mining, to one that is mainly dominated by service, which constitute 72% of the country’s GDP (Andrews-Speed et al, 2012). Moreover, international trade also made up a portion of the country’s economy, with the U.S. being its largest importer and exporter, at 46% and 62% respectively, in 2012 (Simoes, 2014). Hence, with the economy crisis that affected the U.S. since the early 2000s, which includes the Dot Com bubble (Kindleberger, 2005), September 11 (National Commission on Terrorist Attacks Upon the United States, 2004), and Subprime Mortgage Crisis (The Financial Crisis Inquiry Commission, 2011), the growth of exports and imports were not keeping up with the economic growth (GDP)