TY  - JOUR
AU  - Rodrik,Dani
TI  - Why Do More Open Economies Have Bigger Governments?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5537
PY  - 1996
Y2  - April 1996
UR  - http://www.nber.org/papers/w5537
L1  - http://www.nber.org/papers/w5537.pdf
N1  - Author contact info:
Dani Rodrik
John F. Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/495-9454
Fax: 617/496-5747
E-Mail: dani_rodrik@harvard.edu
AB  - 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 loses its significance (or turns negative).  The paper also demonstrates that government consumption is the majority of countries.
ER  -