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On the causal relationship between trade-openness and government-size: evidence from OECD countries

Author

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  • Hassan Molana
  • Catia Montagna
  • Mara Violato

Abstract

The compensation hypothesis predicts a positive causation from international economic openness to the size of the public sector, as governments step in to perform a risk mitigating role to counterbalance the increasing exposure to external risk and the economic dislocations caused by growing international openness. We use time series data from 22 OECD countries over the period 1955-2003 and examine the statistical significance of both long-run and short-run causality channels in each country separately. Our findings fail to provide an overwhelming support for this hypothesis, with only five countries showing some evidence in its favour.

Suggested Citation

  • Hassan Molana & Catia Montagna & Mara Violato, 2011. "On the causal relationship between trade-openness and government-size: evidence from OECD countries," International Journal of Public Policy, Inderscience Enterprises Ltd, vol. 7(4/5/6), pages 226-249.
    • Handle: RePEc:ids:ijpubp:v:7:y:2011:i:4/5/6:p:226-249
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    Citations

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    Cited by:

    1. Giuranno, Michele G. & Nocco, Antonella, 2020. "Trade tariff, wage gap and public spending," Economic Modelling, Elsevier, vol. 91(C), pages 167-179.
    2. Dong-Hyeon Kim & Yu-Bo Suen & Shu-Chin Lin & Joyce Hsieh, 2018. "Government size, government debt and globalization," Applied Economics, Taylor & Francis Journals, vol. 50(25), pages 2792-2803, May.
    3. 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.

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