Advanced Search
MyIDEAS: Login

How Does Trade Openness Influence Budget Deficits in Developing Countries?

Contents:

Author Info

  • Jean-Louis Combes
  • Tahsin Saadi-Sedik

Abstract

This paper analyzes the effects of trade openness on budget balances by distinguishing the effects of natural openness from those of trade-policy induced openness. Using the GMMsystem estimator, the econometric analysis focuses on 66 developing countries during 1974-98. The results show that trade openness increases a country''s exposure to external shocks regardless of its underlying causes. This reinforces the adverse effects of terms of trade instability on budget balances. However, trade openness also influences budget balances through several other channels: corruption, income inequalities, etc. The paper shows that these additional effects of natural openness and trade-policy induced openness on budget balances go in opposite directions: the former deteriorates budget balances whereas the latter improves them.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=18774
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/3.

as in new window
Length: 22
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/3

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Trade policy; Developing countries; Budget deficits; Terms of trade; trade openness; budget balances; government revenue; external shocks; public spending; trade shocks; tax base; fiscal policy; fiscal policies; political economy; trade liberalization; trade policy instruments; fiscal performance; fiscal deficits; trade policies; public finances; measure of trade; impact of trade; terms of trade shocks; budget deficit; fiscal administrations; international trade; budget balance; government budget; reducing tariffs; foreign capital; trade restrictions; government spending; budget surplus; tax rates; capital expenditures; fiscal theories; impact of trade liberalization; value of exports; trade regimes; free-rider problem; liberal trade policy; global integration; public finance; trade taxes; commodity prices; fiscal revenues; public debt; export taxes; fiscal affairs; exchange rate regime; exchange rate regimes; liberal trade; income distribution; fiscal systems; fiscal deficit; reduction in tariffs; budget position; trade barriers; fiscal effort; nontariff barriers; open economies; fiscal affairs department; interest groups; rural population; fiscal surplus; government budgets;

Other versions of this item:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-30, December.
  2. Patrick GUILLAUMONT & Jean-Louis COMBES, 2000. "Commodity Price Volatility, Vulnerability and Development," Working Papers 200015, CERDI.
  3. Spilimbergo, Antonio & Londono, Juan Luis & Szekely, Miguel, 1999. "Income distribution, factor endowments, and trade openness," Journal of Development Economics, Elsevier, vol. 59(1), pages 77-101, June.
  4. Angus Deaton, 1999. "Commodity Prices and Growth in Africa," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 23-40, Summer.
  5. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  6. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  7. repec:umd:umdeco:rodriguez9901 is not listed on IDEAS
  8. Sebastian Edwards, 1997. "Openness, Productivity and Growth: What Do We Really Know?," NBER Working Papers 5978, National Bureau of Economic Research, Inc.
  9. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  10. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 1999. "What Drives Private Saving Across the World?," Working Papers Central Bank of Chile 47, Central Bank of Chile.
  11. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  12. Catao, Luis A.V. & Terrones, Marco E., 2005. "Fiscal deficits and inflation," Journal of Monetary Economics, Elsevier, vol. 52(3), pages 529-554, April.
  13. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  14. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  15. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  16. Rose, Andrew K, 2002. "Do WTO Members have More Liberal Trade Policy?," CEPR Discussion Papers 3659, C.E.P.R. Discussion Papers.
  17. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
  18. Robert E. Baldwin, 1989. "Measuring Nontariff Trade Policies," NBER Working Papers 2978, National Bureau of Economic Research, Inc.
  19. Ricardo Hausmann & Alberto Alesina & Rudolf Hommes & Ernesto H. Stein, 1998. "Budget Institutions and Fiscal Performance in Latin America," Research Department Publications 4160, Inter-American Development Bank, Research Department.
  20. Jean-Louis COMBES & Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY & Pascale COMBES MOTEL, 1999. "Ouverture sur l'extérieur et instabilité des taux de croissance," Working Papers 199927, CERDI.
  21. Paul Cashin & Catherine A. Pattillo, 2000. "Terms of Trade Shocks in Africa," IMF Working Papers 00/72, International Monetary Fund.
  22. Lensink, Robert & Bo, Hong & Sterken, Elmer, 1999. "Does uncertainty affect economic growth? : an empirical analysis," CCSO Working Papers 199902, University of Groningen, CCSO Centre for Economic Research.
  23. Schuknecht, Ludger, 1999. "Fiscal policy cycles and the exchange rate regime in developing countries," European Journal of Political Economy, Elsevier, vol. 15(3), pages 569-580, September.
  24. Bevan, David, 1999. "Trade Liberalization and the Budget Deficit," Journal of Policy Modeling, Elsevier, vol. 21(6), pages 653-694, November.
  25. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  26. Francisco Rodriguez & Dani Rodrik, 1999. "Trade Policy and Economic Growth: A Skeptic's Guide to Cross-National Evidence," NBER Working Papers 7081, National Bureau of Economic Research, Inc.
  27. Savvides, Andreas, 1998. "Trade policy and income inequality: new evidence," Economics Letters, Elsevier, vol. 61(3), pages 365-372, December.
  28. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. David A. Grigorian & Hamid Reza Davoodi, 2007. "Tax Potential vs. Tax Effort," IMF Working Papers 07/106, International Monetary Fund.
  2. Jean-Louis COMBES & Gérard CHAMBAS & Jean-François BRUN, 2006. "Recettes publiques des pays en développement. Méthode d’évaluation," Working Papers 200611, CERDI.
  3. 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.
  4. 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.
  5. 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.
  6. Carola Pessino & Ricardo Fenochietto, 2010. "Determining countries’ tax effort," Hacienda Pública Española, IEF, vol. 195(4), pages 65-87, december.
  7. Ricardo Fenochietto & Carola Pessino, 2013. "Understanding Countries’ Tax Effort," IMF Working Papers 13/244, International Monetary Fund.
  8. repec:pdn:wpaper:46 is not listed on IDEAS
  9. Martin Petri & Tahsin Saadi-Sedik, 2006. "To Smooth or Not to Smooth," IMF Working Papers 06/257, International Monetary Fund.
  10. 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.
  11. Leslie Teo & David Cowen & Hemant Shah & Ranil Salgado & Alessandro Zanello, 2006. "Financial Integration in Asia," IMF Working Papers 06/196, International Monetary Fund.
  12. Christian EBEKE, 2010. "Transferts des migrants, ouverture sur l'extérieur et dépenses publiques dans les pays en développement," Working Papers 201011, CERDI.
  13. 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).
  14. Foued Chihi & Michel Normandin, 2008. "External and Budget Deficits in Developing Countries," Cahiers de recherche 0819, CIRPEE.
  15. Jean-Louis Combes & Pascale Combes Motel & Somlanare Romuald KINDA, 2014. "Do Environmental Policies Hurt Trade Performance?," Working Papers halshs-00939249, HAL.
  16. Christian Ebeke & Dilan Ölçer, 2013. "Fiscal Policy over the Election Cycle in Low-Income Countries," IMF Working Papers 13/153, International Monetary Fund.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:06/3. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.