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Government size and openness: Evidence from the commodity boom in Latin America

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  • Vianna, Andre C.
  • Mollick, Andre V.

Abstract

Does government size increase to compensate for the volatility that arises from openness? We evaluate this compensation hypothesis by focusing on Latin America, whose economic growth in the 2000s has been often attributed to the commodity boom. Panel data regressions show that during the 2003–2010 commodity boom terms of trade volatility has positive effects on government size compared to the earlier 1990–2002 period. This key finding supports the compensation hypothesis, a result robust to dynamic panels allowing for reverse causation from government size to the real economy. Policy implications include diversification of the production structure and strengthening of regulatory framework.

Suggested Citation

  • Vianna, Andre C. & Mollick, Andre V., 2018. "Government size and openness: Evidence from the commodity boom in Latin America," Resources Policy, Elsevier, vol. 59(C), pages 318-328.
    • Handle: RePEc:eee:jrpoli:v:59:y:2018:i:c:p:318-328
    DOI: 10.1016/j.resourpol.2018.08.004
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    Cited by:

    1. Vianna, Andre C. & Mollick, Andre V., 2021. "Threshold effects of terms of trade on Latin American growth," Economic Systems, Elsevier, vol. 45(4).
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    3. Ahmet Tekin & İbrahim Tuğrul Çınar & Ersin Nail Sağdıç & Fazlı Yıldız, 2023. "Trade Openness and Sustainable Government Size: Evidence from Central and Eastern European Countries," Sustainability, MDPI, vol. 15(15), pages 1-17, August.
    4. Costa Junior, Celso J. & Garcia-Cintado, Alejandro C., 2021. "Rent-seeking in an emerging market: A DSGE approach," Economic Systems, Elsevier, vol. 45(2).

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    More about this item

    Keywords

    Commodity boom; Government size; Latin America; Openness; Panel data;
    All these keywords.

    JEL classification:

    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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