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Why do More Open Economies Have Bigger Governments? Name Institutional affiliation Date Abstract This research paper examines the reasons for the positive relationship between government size and trade openness. Numerous studies have found evidence for the existence of this relationship in many countries, both the developed and the developing. The correlation holds true for all categories of government spending. More so, this paper reports that this relationship tends to be strong as a country's foreign trade increases, and plays a critical role in cushioning the domestic economy against shocks arising from international markets. As the government spends more, it develops the local economy, thereby making it more resilient against risk spillover from the global markets. Given the positive relationship between openness and government size, this paper supports the view that foreign trade policies may have a significant impact on the economic development of developing countries. It is because, with favorable foreign trade policies and greater international competition, governments in developing countries commit substantial budget resources to enhance the outlook and competitiveness of the domestic economy. Similarly, developed countries spend more on the local economy to boost their trade. Why do More Open Economies Have Bigger Governments? In recent years, there has been increasing interest regarding the relationship between openness and government size. The notion that the size of the government may be correlated to openness has been proposed by many economists and researchers and is the basis for numerous theoretical models such as the compensation
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