Government Size and Openness: Insights Basedon Country Classifications

Erkam Sarı and Hakan Hotunluoglu ()
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Hakan Hotunluoglu: Department of Public Finance, Adnan Menderes University

World Journal of Applied Economics, 2021, vol. 7, issue 1, 1-16

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.

Keywords: Government size; Trade openness; Financial openness; Club convergence (search for similar items in EconPapers)
JEL-codes: C33 F62 H50 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:ana:journl:v:7:y:2021:i:1:p:1-16

DOI: 10.22440/wjae.7.1.1

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