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How does trade openness influence budget deficits in developing countries?

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  • Jean-Louis Combes
  • Tahsin Saadi-Sedik

Abstract

This paper analyses the effects of trade openness on budget balances by distinguishing the effects of natural openness from those of trade policy. Revealed indicators of natural openness and trade policy are computed. Using GMM-system estimator, the econometric analysis focuses on 66 developing countries over 1974-98. The results show that trade openness increases a country's exposure to external shocks. This enforces the negative impact on budget balances of terms of trade instability. Additionally, trade openness influences budget balances through several other channels: corruption, income inequalities, etc. Then natural openness and trade policy have opposite effects: the former deteriorates budget balances whereas the latter enhances them.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00220380600930762
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Journal of Development Studies.

Volume (Year): 42 (2006)
Issue (Month): 8 ()
Pages: 1401-1416

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Handle: RePEc:taf:jdevst:v:42:y:2006:i:8:p:1401-1416

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References

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Citations

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Cited by:
  1. Christian Hubert EBEKE, 2011. "Remittances, Countercyclicality, Openness and Government Size," Discussion Papers (REL - Recherches Economiques de Louvain) 2011044, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Jean-François Brun & Gérard Chambas & Jean-Louis Combes, 2011. "Recettes publiques des pays en développement. Méthode d'évaluation," Working Papers halshs-00564568, HAL.
  3. Tim Krieger & Jens Ruhose, 2011. "“Honey, I shrunk the kids’ benefits!” — Revisiting intergenerational conflict in OECD countries," Working Papers 46, University of Paderborn, CIE Center for International Economics.
  4. Christian Ebeke & Dilan Ölçer, 2013. "Fiscal Policy over the Election Cycle in Low-Income Countries," IMF Working Papers 13/153, International Monetary Fund.
  5. Ricardo Fenochietto & Carola Pessino, 2013. "Understanding Countries’ Tax Effort," IMF Working Papers 13/244, International Monetary Fund.
  6. Somlanare Romuald KINDA & Pascale COMBES MOTEL & Jean-Louis COMBES, 2014. "Do Environmental Policies Hurt Trade Performance?," Working Papers 201404, CERDI.
  7. Azim M. Sadikov & Hans P. Lankes & Dustin Smith & Katrin Elborgh-Woytek & Jean-Jacques Hallaert, 2006. "Fiscal Implications of Multilateral Tariff Cuts," IMF Working Papers 06/203, International Monetary Fund.
  8. David A. Grigorian & Hamid Reza Davoodi, 2007. "Tax Potential vs. Tax Effort: A Cross-Country Analysis of Armenia's Stubbornly Low Tax Collection," IMF Working Papers 07/106, International Monetary Fund.
  9. Leslie Teo & David Cowen & Hemant Shah & Ranil Salgado & Alessandro Zanello, 2006. "Financial Integration in Asia: Recent Developments and Next Steps," IMF Working Papers 06/196, International Monetary Fund.
  10. Foued Chihi & Michel Normandin, 2008. "External and Budget Deficits in Developing Countries," Cahiers de recherche 0819, CIRPEE.
  11. Christian EBEKE, 2010. "Transferts des migrants, ouverture sur l'extérieur et dépenses publiques dans les pays en développement," Working Papers 201011, CERDI.
  12. Diallo, Oumar, 2009. "Tortuous road toward countercyclical fiscal policy: Lessons from democratized sub-Saharan Africa," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 36-50.
  13. Carola Pessino & Ricardo Fenochietto, 2010. "Determining countries’ tax effort," Hacienda Pública Española, IEF, vol. 195(4), pages 65-87, december.
  14. Lis, Eliza M. & Nickel, Christiane, 2009. "The impact of extreme weather events on budget balances and implications for fiscal policy," Working Paper Series 1055, European Central Bank.
  15. Éva Polgár & Julia Wörz, 2010. "No risk and some fun? Trade and wages in the enlarged European Union," Empirica, Springer, vol. 37(2), pages 127-163, May.
  16. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth - The Impact of Grants and Remittances on the Equilibrium Real Exchange Rate in Jordan," IMF Working Papers 06/257, International Monetary Fund.

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