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Does national income mediate the relationship between trade and government size?

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  • Kevin Williams

    (The University of the West Indies, Mona Campus)

Abstract

This paper estimates a panel model in which the relationship between trade and government size is determined by countries’ per capita GDP. The panel model covers 126 countries during the 1980–2018 period. Estimates of the model show that the correlation between trade and government size is decreasing in the level of countries’ per capita GDP. For high-income countries with a per capita GDP above $12000US, the association between trade and government size is negative. For low-income countries with a per capita GDP below $1000US, the relationship between trade and government size is positive. In the year 2018, the average country had a per capita GDP of about $14228US. For this country, the estimated coefficients suggest that a 1% increase in trade had a predicted association with the long-run level of the size of government of over 0.17%. The paper also presents estimates suggesting that the relationship between trade and the composition of government spending differs depending on countries’ incomes.

Suggested Citation

  • Kevin Williams, 2021. "Does national income mediate the relationship between trade and government size?," Empirical Economics, Springer, vol. 61(6), pages 3029-3057, December.
    • Handle: RePEc:spr:empeco:v:61:y:2021:i:6:d:10.1007_s00181-021-02017-3
    DOI: 10.1007/s00181-021-02017-3
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    More about this item

    Keywords

    Government size; Trade; Panel data; System GMM;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H10 - Public Economics - - Structure and Scope of Government - - - General

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