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Trade openness and government size of small developing countries

Author

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  • Faqin Lin
  • Bing Li
  • Nicholas C. S. Sim

Abstract

type="main" xml:id="ecot12053-abs-0001" xml:lang="en"> This paper examines the causal effect that trade openness has on government size in small developing countries (SDCs). We use the construction of the trade cost variables based on Baltic Dry Index in primary goods as instruments of trade openness to address the endogeneity issue. We find that the increase in trade openness leads to an increase in government size: a 1 percent expansion in trade openness (trade GDP ratio) raises government consumption over GDP ratio by approximately 0.1–0.2 percentage points on average. Its quantitative significance emphasizes the importance of rethinking the costs and benefits of trade openness for SDCs.

Suggested Citation

  • Faqin Lin & Bing Li & Nicholas C. S. Sim, 2014. "Trade openness and government size of small developing countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(4), pages 783-808, October.
  • Handle: RePEc:bla:etrans:v:22:y:2014:i:4:p:783-808
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    File URL: http://hdl.handle.net/10.1111/ecot.2014.22.issue-4
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    1. repec:etr:series:v:9:y:2018:i:1:p:012-021 is not listed on IDEAS
    2. 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.

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