Expansionary Effects of the Welfare State in a Small Open Economy

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Expansionary Effects of the Welfare State in a Small Open Economy

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Hassan Molana
Catia Montagna ()

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Abstract

We examine the relationship between welfare state policies and economic performance in a small open economy with (i) free trade in final goods and international capital mobility, and (ii) aggregate increasing returns to scale. Contrary to the conventional wisdom, we find that a retrenchment of welfare programmes is not an inevitable consequence of economic integration. Instead, by improving the exploitation of aggregate scale economies, social expenditure policies and international openness complement each other in facilitating an improvement in economic performance that can sustain a more generous welfare protection.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Conference Paper Series with number 0505.

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Date of creation: Oct 2005
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Handle: RePEc:san:cdmacp:0505

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Article
- Molana, Hassan & Montagna, Catia, 2007. "Expansionary effects of the welfare state in a small open economy," The North American Journal of Economics and Finance, Elsevier, vol. 18(3), pages 231-246, December. [Downloadable!] (restricted)

Find related papers by JEL classification:
E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
F1 - International Economics - - Trade
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-12-01 (All new papers)
NEP-INT-2005-12-01 (International Trade)
NEP-PBE-2005-12-01 (Public Economics)

References listed on IDEAS
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Bartelsman, Eric J & Caballero, Ricardo J & Lyons, Richard K, 1994. "Customer- and Supplier-Driven Externalities," American Economic Review, American Economic Association, vol. 84(4), pages 1075-84, September. [Downloadable!] (restricted)
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Other versions:
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- Daron Acemoglu & Robert Shimer, 1999. "Productivity Gains from Unemployment Insurance," Working papers 99-29, Massachusetts Institute of Technology (MIT), Department of Economics.
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Other versions:
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Hassan Molana & Catia Montagna, 2005. "Aggregate Scale Economies, Market Integration and Optimal Welfare State Policy," International Trade 0509006, EconWPA. [Downloadable!]
Other versions:
- Hassan Molana & Catia Montagna, 2005. "Aggregate Scale Economies, Market Integration, and Optimal Welfare State Policy," International Trade 0510002, EconWPA. [Downloadable!]
- Molana, Hassan & Montagna, Catia, 2006. "Aggregate scale economies, market integration, and optimal welfare state policy," Journal of International Economics, Elsevier, vol. 69(2), pages 321-340, July. [Downloadable!] (restricted)
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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. [Downloadable!] (restricted)
Other versions:
- Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Kiminori Matsuyama, 1995. "Complementarities and Cumulative Processes in Models of Monopolistic Competition," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 701-729, June. [Downloadable!] (restricted)
Other versions:
- Kiminiori Matsuyama, 1994. "Complementaries and Cumulative Processes In Models of Monopolistic Competition," Discussion Papers 1106, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April. [Downloadable!] (restricted)

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