3.2 Measures of Openness
Openness is a variable that can be approximated in several ways, and in the current
literature, several approximations are used. Therefore, I will look at three different measures of
openness. The first is the ratio of total trade (exports plus imports) to gross domestic product and
is obtained from the World Bank’s World Development Indicators. The second measure I
consider is the Chinn-Ito Financial Openness Index. The Chinn-Ito Index measures capital
account openness and provides data for 163 countries from 1970 to 2004. The Chinn-Ito Index is
calculated using restrictions on cross-border financial transactions that are available from the
International Monetary Fund’s Annual Report on Exchange Arrangements and Exchange
Restrictions. The third measure used is the Economic Globalisation Index provided by the Centre
for the Study of Globalisation and Regionalisation at the University of Warwick. This index is
calculated using data on trade, foreign direct investment, portfolio investment and income from
foreign workers, foreign assets, expatriates and foreign-owned domestic assets. The primary
estimates in this paper will include openness as measured by total trade divided by GDP.
However, tables providing estimates using the other two measures of openness are available in
Appendix B.
3.3 Corporate Tax Rates and Country-level Data
The key variable of interest in this paper is the corporate tax rate. Each country’s highest
marginal corporate tax rate is available from the World Tax Database provided by the Office of
Tax Policy Research at the University of Michigan. For most countries, corporate tax rates
tended to fall from 1979 to 2000. Switzerland has the lowest corporate tax rate at 9.8 percent in
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