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The relationship between trade openness and government size: Does disaggregating government expenditure matter?


  • Benarroch, Michael
  • Pandey, Manish


This paper is the first to examine the causal relationship between trade openness and government size using both aggregate and disaggregated government expenditure data, including data on social security. Our results indicate that examining the relationship separately for functional categories of government expenditures and based on differences in incomes across countries provide important details on the relationship between the two variables not found elsewhere in the literature. Our causality tests provide little or no support for a causal relationship between openness and aggregate or disaggregated government expenditure. Similar results are obtained when our sample is split into low income versus high income countries. The only evidence of a robust, statistically significant, positive causal relationship is found between openness and education expenditures in low income countries. In no case is there a positive causal relationship between social security and openness. This leads us to conclude that there is no evidence to support the relationship suggested by Rodrik (1998).

Suggested Citation

  • Benarroch, Michael & Pandey, Manish, 2012. "The relationship between trade openness and government size: Does disaggregating government expenditure matter?," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 239-252.
  • Handle: RePEc:eee:jmacro:v:34:y:2012:i:1:p:239-252 DOI: 10.1016/j.jmacro.2011.11.002

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    References listed on IDEAS

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    Cited by:

    1. Bjørnskov, Christian & Rode, Martin, 2016. "And Yet It Grows: Crisis, Ideology, and Interventionist Policy Ratchets," Working Paper Series 1135, Research Institute of Industrial Economics.
    2. Paul Maarek & Renaud Bourlès & Michael T.Dorsch, 2014. "Income Redistribution and the Diversity of Consumer Goods," THEMA Working Papers 2014-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    3. Jetter, Michael & Parmeter, Christopher F., 2015. "Trade openness and bigger governments: The role of country size revisited," European Journal of Political Economy, Elsevier, vol. 37(C), pages 49-63.
    4. Ashraf, Ayesha, 2015. "The Effects of Greenfield FDI and Cross-Border M&As on Government Size," MPRA Paper 65061, University Library of Munich, Germany.
    5. Ashraf, Ayesha & Herzer, Dierk & Nunnenkamp, Peter, 2016. "Greenfield FDI, cross-border M&As and government size," Kiel Working Papers 2068, Kiel Institute for the World Economy (IfW).
    6. Eiji Fujii, 2017. "Government Size, Trade Openness, and Output Volatility: A Case of fully Integrated Economies," Open Economies Review, Springer, vol. 28(4), pages 661-684, September.
    7. Gao Liu & Rui Sun, 2016. "Economic Openness and Subnational Borrowing," Public Budgeting & Finance, Wiley Blackwell, vol. 36(2), pages 45-69, June.
    8. repec:ajm:journl:v:10:y:2016:i:2:p:39-55 is not listed on IDEAS
    9. Zareh Asatryan & Sebastian Braun & Wolfgang Lechthaler & Mariya Mileva & Catia Montagna, 2014. "Compensating the losers of free trade," WWWforEurope Working Papers series 63, WWWforEurope.

    More about this item


    Government size; Openness; Causality;

    JEL classification:

    • F1 - International Economics - - Trade
    • H1 - Public Economics - - Structure and Scope of Government


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