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What does the trade-to-GDP ratio indicate about an economy? Why does a smaller country, such as...

  1. What does the trade-to-GDP ratio indicate about an economy? Why does a smaller country, such as Luxembourg, generally have a larger trade-to-GDP ratio?
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Answer) Trade to GDP ratio indicates what proportion of GDP is generated by trade. According to Keynes equation, GDP is a function of consumption, investment, government expenditure, and trade. Higher trade to GDP ratio depicts that a larger proportion of GDP is accrued to international trade.

In case of Luxembourg, which is a small economy. Trade is occuring due to extensive export of dairy products like milk and cheese. This trade is helping the economy to sustain in the world economy.

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