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Government Size and Openness: Insights Basedon Country Classifications

Author

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  • Erkam Sari

    (Department of Public Finance, Adnan Menderes University)

  • Hakan Hotunluoglu

    (Department of Public Finance, Adnan Menderes University)

Abstract

This study investigates the nexus between government size and openness by paying special attention to country classification. The main results of our empirical investigations show that (i) there are two government size trends meaning two different country groups exist; (ii) there is a positive relationship between trade openness and government size for the first country group, which validates the compensation hypothesis; (iii) a negative relationship between financial openness and government size is found for the second country group, which confirms the efficiency hypothesis; (iv) the effect of financial openness is nearly ten times higher than trade openness; (v) an endogenous country classification process yields better results to understand the linkages between openness and government size. In this regard our study incorporates both hypotheses and provides a uniform explanation.

Suggested Citation

  • Erkam Sari & Hakan Hotunluoglu, 2021. "Government Size and Openness: Insights Basedon Country Classifications," World Journal of Applied Economics, WERI-World Economic Research Institute, vol. 7(1), pages 1-16, June.
    • Handle: RePEc:ana:journl:v:7:y:2021:i:1:p:1-16
    DOI: 10.22440/wjae.7.1.1
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    More about this item

    Keywords

    Government size; Trade openness; Financial openness; Club convergence;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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