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Government size and openness: Evidence from the commodity boom in Latin America

Andre C. Vianna and Andre V. Mollick

Resources Policy, 2018, vol. 59, issue C, 318-328

Abstract: Does government size increase to compensate for the volatility that arises from openness? We evaluate this compensation hypothesis by focusing on Latin America, whose economic growth in the 2000s has been often attributed to the commodity boom. Panel data regressions show that during the 2003–2010 commodity boom terms of trade volatility has positive effects on government size compared to the earlier 1990–2002 period. This key finding supports the compensation hypothesis, a result robust to dynamic panels allowing for reverse causation from government size to the real economy. Policy implications include diversification of the production structure and strengthening of regulatory framework.

Keywords: Commodity boom; Government size; Latin America; Openness; Panel data (search for similar items in EconPapers)
JEL-codes: Q33 H50 N16 O24 C23 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jrpoli:v:59:y:2018:i:c:p:318-328