What Drives Public Employment in Developing Countries?

An excessive level of employment is a frequent complaint made about public‐sector governance in developing economies. The explanation typically offered is that governments use public‐sector employment as a tool for generating and redistributing rents. This article suggests an alternative hypothesis: relatively safe government jobs represent partial insurance againstundiversifiable external risk faced by the domestic economy. I show that countries that are greatly exposed to external risk have higher levels of government employment and have experienced faster rates of growth of government consumption. The basic finding on this (partial) correlation is robust against the hypotheses typically offered.