Citation

Discussion Paper Details

Please find the details for DP1388 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Why do More Open Economies Have Bigger Governments?

Author(s): Dani Rodrik

Publication Date: May 1996

Keyword(s): Fiscal Policy, Government and Openness

Programme Area(s): International Trade and Regional Economics

Abstract: This paper demonstrates that there is a robust empirical association between the extent to which an economy is exposed to trade and the size of its government sector. This association holds for a large cross-section of countries, in low- as well as high-income samples, and is robust to the inclusion of a wide range of controls. The explanation appears to be that government consumption plays a risk-reducing role in economies exposed to a significant amount of external risk. When openness is interacted with explicit measures of external risk, such as terms-of-trade uncertainty and product concentration of exports, it is the interaction terms that enter significantly, and the openness term that loses significance (or turns negative). The paper also demonstrates that government consumption is the ?safe? activity, in the empirically relevant sense, in the vast majority of countries.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1388

Bibliographic Reference

Rodrik, D. 1996. 'Why do More Open Economies Have Bigger Governments?'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1388