Why Do More Open Economies Have Bigger Governments?
AbstractThis paper demonstrates that there is a robust empirical association between the extent to which an economy is exposed to trade and the size of its government sector. This association holds for a large cross-section of countries, in low- as well as high-income samples, and is robust to the inclusion of a wide range of controls. The explanation appears to be that government consumption plays a risk-reducing role in economies exposed to a significant amount of external risk. When openness is interacted with explicit measures of external risk, such as terms-of-trade uncertainty and product concentration of exports, it is the interaction terms that enter significantly, and the openness term loses its significance (or turns negative). The paper also demonstrates that government consumption is the majority of countries.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5537.
Date of creation: Apr 1996
Date of revision:
Publication status: published as Journal of Political Economy (October 1998).
Note: ITI IFM PE
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Other versions of this item:
- Dani Rodrik, 1998. "Why Do More Open Economies Have Bigger Governments?," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 997-1032, October.
- Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
- H1 - Public Economics - - Structure and Scope of Government
- F15 - International Economics - - Trade - - - Economic Integration
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- Bates, Robert H. & Brock, Philip & Tiefenthaler, Jill, 1991. "Risk and trade regimes: another exploration," International Organization, Cambridge University Press, vol. 45(01), pages 1-18, December.
- Jeffrey A. Frankel & David Romer, 1996. "Trade and Growth: An Empirical Investigation," NBER Working Papers 5476, National Bureau of Economic Research, Inc.
- Joel Slemrod, 1995. "Involvement, Prosperity, and Economic Growth?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 373-431.
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