Great ratios and international openness

- Examine the stationarity of great ratios by highlighting international openness
- Delicately use trade and capital account indicators to measure international openness
- Great ratios tend to be non-stationary if the economy runs a surplus trade balance.
- There is not a significant relationship between great ratios and the capital account.
- Reconcile the disparity in great ratios for various countries.

The great ratios have been regularly used to calibrate the long-run properties of theoretical macroeconomic models; yet their stationarity is not supported by empirical studies unequivocally. This paper empirically tests whether the international openness governs the stationarity of the great ratios. By considering 21 OECD countries, our results show that the countries with relatively high openness are less likely to exhibit a balanced-growth-path equilibrium. By controlling for a potential endogeneity problem, the great ratios are less likely to be stationary if the economy runs a surplus trade balance.