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Type: Journal article
Title: Trade openness and government size of small developing countries: an instrumental approach
Author: Lin, F.
Li, B.
Sim, N.
Citation: Economics of Transition, 2014; 22(4):783-808
Issue Date: 2014
ISSN: 0967-0750
Statement of
Faqin Lin, Bing Li and Nicholas C. S. Sim
Abstract: This paper examines the causal effect that trade openness has on government size in small developing countries (SDCs). We use the construction of the trade cost variables based on Baltic Dry Index in primary goods as instruments of trade openness to address the endogeneity issue. We find that the increase in trade openness leads to an increase in government size: a 1 percent expansion in trade openness (trade GDP ratio) raises government consumption over GDP ratio by approximately 0.1– 0.2 percentage points on average. Its quantitative significance emphasizes the importance of rethinking the costs and benefits of trade openness for SDCs.
Keywords: Trade openness; government size; BDI cost
Rights: © 2014 The Authors Economics of Transition © 2014 The European Bank for Reconstruction and Development.
RMID: 0030021000
DOI: 10.1111/ecot.12053
Appears in Collections:Economics publications

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