On the causal relationship between trade openness and government size: evidence from 23 OECD countries

Hassan Molana, Catia Montagna, Mara Violato

    Research output: Working paperDiscussion paper

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    Abstract

    In the literature on the effects of economic globalisation, the compensation hypothesis predicts a positive relationship between trade openness and the size of the public sector, as governments perform a risk mitigating role in the face of internationally generated risk and economic dislocations. Statistically, support for the compensation hypothesis should entail a positive causality running from trade-openness to government size. We use time series data - for 23 industrialised OECD countries over the 1948-1998 period - to test this hypothesis within the framework proposed by Sims and Granger. Our findings fail to provide overwhelming support for it.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2004

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.164
    ISSN (Print)1473-236X

    Keywords

    • Globalisation
    • Trade-openness
    • Government size
    • Welfare state
    • Causality
    • Cointegration

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    Molana, H., Montagna, C., & Violato, M. (2004). On the causal relationship between trade openness and government size: evidence from 23 OECD countries. (Dundee Discussion Papers in Economics; No. 164). University of Dundee.