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Government Size, Openness and Income Risk Nexus: New Evidence from Some African Countries

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  • Ikechukwu D. NWAKA

    (Eastern Mediterranean University)

  • Stephen T. ONIFADE

    (Eastern Mediterranean University)

Abstract

Empirical evidence for the compensation hypothesis holds that trade openness independent of income risk has no significant effects on government size. Hence, using time series data for the period 1965-2013 from Egypt, Ghana, Kenya, Nigeria and South Africa and applying the bounds test method of cointegration, this paper investigates the nature of the relationship between openness, income risk, terms of trade volatility and income per capita on government size in each of the 5 African countries. Our empirical findings show a long-run relationship particularly in Egypt and Ghana and a limited evidence for other countries. Similarly, after applying both the Autoregressive Distributed Lags (ARDL) and Fully Modified OLS (FM-OLS) on original data and Moving Average (MV) converted data, our findings vary across the countries due to country-specific factors. Hence, the evidence we find does not support the compensation hypothesis. However, we observe significant positive effects of income per capita on government size for each country and some evidence of the mitigating and cushioning effects of governments when exposed to income risks and volatility due to trade openness. We therefore suggest some appropriate policy recommendations for the selected countries.

Suggested Citation

  • Ikechukwu D. NWAKA & Stephen T. ONIFADE, 2015. "Government Size, Openness and Income Risk Nexus: New Evidence from Some African Countries," Working Papers of the African Governance and Development Institute. 15/056, African Governance and Development Institute..
    • Handle: RePEc:agd:wpaper:15/056
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    Cited by:

    1. Stephen T. Onifade & Ahmet Ay & Simplice A. Asongu & Festus V. Bekun, 2019. "Revisiting the Trade and Unemployment Nexus: Empirical Evidence from the Nigerian Economy," Working Papers 19/079, European Xtramile Centre of African Studies (EXCAS).
    2. Stephen Taiwo Onifade & Savaş Çevik & Savaş Erdoğan & Simplice Asongu & Festus Victor Bekun, 2020. "An empirical retrospect of the impacts of government expenditures on economic growth: new evidence from the Nigerian economy," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 9(1), pages 1-13, December.
    3. ONIFADE Stephen Taiwo & ACET Hakan & ÇEVİK Savaş, 2022. "Modeling The Impacts Of Msmes' Contributions To Gdp And Their Constraints On Unemployment: The Case Of African’S Most Populous Country," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 17(1), pages 154-170, April.
    4. Olawole, Kolawole & Adebayo, Temidayo, 2017. "Openness and Government Size:The Compensation and Efficiency Hypotheses Considered for Nigeria," MPRA Paper 82022, University Library of Munich, Germany.
    5. Dimitra Mitsi, 2021. "Good Governance and Economic Growth in South European Countries," Review of European Studies, Canadian Center of Science and Education, vol. 13(2), pages 1-26, June.

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