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Government size and openness revisited: the case of financial globalization

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  • Alena Kimakova
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    Abstract

    The volatility of international capital flows to emerging markets has been well documented. Financial globalization may not in general fulfill its theoretical role as a risk sharing mechanism in financially underdeveloped economies, and hence may provide an impetus for compensating government spending. Comparative studies of the public sector have provided evidence of a robust positive association between government size and openness of the economy to trade flows. This paper extends the existing literature by investigating the relationship between government size and financial openness for 87 developing and developed countries between 1976 and 2003. The analysis reveals a positive relationship between exposure to international capital flows and government size. Furthermore, interacting capital flows with income levels shows that richer open economies tend to have smaller government size. These findings are consistent with the hypothesis that benefits of financial integration, in terms of improved risk-sharing and consumption smoothing, accrue only beyond a certain minimum level of financial development. Copyright 2009 Blackwell Publishing Ltd.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Kyklos.

    Volume (Year): 62 (2009)
    Issue (Month): 3 (08)
    Pages: 394-406

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    Handle: RePEc:bla:kyklos:v:62:y:2009:i:3:p:394-406

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0023-5962

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    Cited by:
    1. Wu, Alfred M. & Lin, Mi, 2010. "Determinants of government size: Evidence from China," MPRA Paper 27089, University Library of Munich, Germany.
    2. Wu, Alfred M. & Wang, Wen, 2013. "Determinants of Expenditure Decentralization: Evidence from China," World Development, Elsevier, vol. 46(C), pages 176-184.
    3. Michael, Bryane & Popov, Maja, 2011. "The Size and Structure of Government," MPRA Paper 53283, University Library of Munich, Germany.
    4. Francesca Gastaldi & Paolo Liberati, 2011. "Economic integration and government size: a review of the empirical literature," Financial Theory and Practice, Institute of Public Finance, vol. 35(3), pages 327-384.
    5. Erauskin, Iñaki, 2013. "The impact of financial openness on the size of utility-enhancing government," Economics Discussion Papers 2013-7, Kiel Institute for the World Economy.
    6. Liberati, Paolo, 2013. "Government Size and Trade Openness: Some Additional Insights," MPRA Paper 43561, University Library of Munich, Germany.
    7. Benarroch, Michael & Pandey, Manish, 2012. "The relationship between trade openness and government size: Does disaggregating government expenditure matter?," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 239-252.

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