Trade Openness-Government Size Nexus: Compensation Hypothesis Considered for Nigeria
DOI:
https://doi.org/10.6000/1929-7092.2014.03.27Keywords:
Compensation Hypothesis, trade openness, government size, Bound Test, Nigeria.Abstract
Over the years, substantial theoretical and empirical studies have been carried out on the trade openness-government size nexus. While a strand of the literature reported positive linkage, the other suggests otherwise. This study contributes to the debate by examining this relationship for Nigeria using the bounds testing approach to cointegration within an ARDL framework proposed by Pesaran et al. (2001). Empirical evidence reveals that government size measured by percentage share of total government expenditure in GDP and share (percent) of recurrent expenditure in GDP significantly affects trade openness in the long run but percentage share of capital expenditure in GDP as a measure of government size does not impact on trade openness in the long run. The results of the standard causality test corroborate these findings. However, the three measures of government size considered significantly affect trade openness in the short run. The major implication for our study therefore is that compensation hypothesis holds for Nigeria. Thus, the government need to continue to expand its expenditure in order to cushion the effect of increase in risk caused by rising trade openness.References
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Arellano, Manuel and Bond, Stephen (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and Application to Employment Equations”, The Review of Economic Studies, 58,277-297.
http://dx.doi.org/10.2307/2297968
Aydogus, Ismail and Topcu, Mert (2013). An Investigation of Co-Integration and Causality between Trade Openness and Government Size in Turkey, International Journal of Economics and Financial Issues, Vol. 3, No. 2, pp.319-323.
Bahmani-Oskooee, Moshen, Brooks, J. Tagggert (1999), “Bilateral J-curve Between US and Her Trading Partners”, Weltwirtschaftliches Archiv, 135, 156-165.
http://dx.doi.org/10.1007/BF02708163
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Benarroch, Micheal and Pandey, Manish (2012), “The Relationship between Trade Openness and Government Size: Does Disaggregating Government Expenditure Matter? Journal of Macroeconomics, 34, 239-252.
http://dx.doi.org/10.1016/j.jmacro.2011.11.002
Cameron, David. R. (1978), “The Expansion of the Public Economy: A Comparative Analysis”. American Political Science Review, 72, 237–269.
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http://dx.doi.org/10.1007/BF02732706
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presented by the Ecomod Network and the Middle East Economic Association
held at Free University of Brussels Belgium.
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Pesaran, M. Hashem., Shin, Yongcheol and Smith, J. Richard (2001), “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, 16, 289-326.
http://dx.doi.org/10.1002/jae.616
Rivas, Mª Dolores. G., Sort, Marcela. S. and Rodríguez, Estela. S. (2009), “The Relationship between Trade Openness and Public Expenditure”. The Spanish case, 1960-2000. Documento de Trabajo 2009-06, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
Rodrik, Dani (1997), “Has Globalization Gone Too Far”, Institute for International Economics.Washington D.C.
Rodrik, Dani. (1998), “Why Do More Open Economies Have Bigger Governments”? Journal of Political Economy, 106 (5), 997-1032.
http://dx.doi.org/10.1086/250038
Ruggie, John.G. (1982), “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order”, International Organization, 36, 379–415.
http://dx.doi.org/10.1017/S0020818300018993
Sanz, Ismael and Velázquez, Francisco. J. (2003), “Does Globalization increase Government Size? An Analysis of the Effects of Foreign Direct Investment on Total Government Expenditures and its Components”, mimeo.
Shahbaz, M., Rehman, H.Ur, and Amir, N. (2010), “The Impact of Trade and Financial-
Openness on Government Size: A Case Study of Pakistan”, Journal of Quality and Technology Management, Vol. VI, Issue 1, pg. 105 – 118.
Swee Kueh, Jerome Swee-Hui and Puah, Chin-Hong and Wong, Chiew-Meu (2008), “Bounds Estimation for Trade Openness and Government Expenditure Nexus of ASEAN-4 Countries”, MPRA Paper No. 12351
http://dx.doi.org/10.1016/S0047-2727(98)00010-3
Alvarez, S., Pascual, M. and Romero, D. (2003), “Protección social, globalizacióny crecimiento económico”, Hacienda Pública española, Monografía, pp. 63-77.
Arellano, Manuel and Bond, Stephen (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and Application to Employment Equations”, The Review of Economic Studies, 58,277-297.
http://dx.doi.org/10.2307/2297968
Aydogus, Ismail and Topcu, Mert (2013). An Investigation of Co-Integration and Causality between Trade Openness and Government Size in Turkey, International Journal of Economics and Financial Issues, Vol. 3, No. 2, pp.319-323.
Bahmani-Oskooee, Moshen, Brooks, J. Tagggert (1999), “Bilateral J-curve Between US and Her Trading Partners”, Weltwirtschaftliches Archiv, 135, 156-165.
http://dx.doi.org/10.1007/BF02708163
Benarroch, Micheal and Pandey, Manish (2008), “Trade Openness and Government Size”, Economic Letters, 101, 157-159
http://dx.doi.org/10.1016/j.econlet.2008.06.016
Benarroch, Micheal and Pandey, Manish (2012), “The Relationship between Trade Openness and Government Size: Does Disaggregating Government Expenditure Matter? Journal of Macroeconomics, 34, 239-252.
http://dx.doi.org/10.1016/j.jmacro.2011.11.002
Cameron, David. R. (1978), “The Expansion of the Public Economy: A Comparative Analysis”. American Political Science Review, 72, 237–269.
http://dx.doi.org/10.2307/1954537
Central Bank of Nigeria (CBN) (2012), Annual Statistical Bulletin.
Epifani, Paolo. and Gancia, Gino. (2009). Openness, Government Size and the terms of Trade, Review of Economic Studies, Vol. 76 (2), pp. 629-668.
http://dx.doi.org/10.1111/j.1467-937X.2009.00546.x
Garen John., Trask, Kathleen (2005), “Do More Open Economies have Bigger Governments? Another Look”, Journal of Development Economics, 77: 533-551.
http://dx.doi.org/10.1016/j.jdeveco.2004.04.002
Garrett, Geoffrey. (2000): “Globalization and Government Spending around the World”, Studies in Comparative International Development, 35 (4), pp. 3-29.
http://dx.doi.org/10.1007/BF02732706
Islam, Muhammad (2004), “The Long Run Relationship between Openness and Government Size: Evidence from Bounds Test”, Applied Economics, 36(9), 995-1000.
http://dx.doi.org/10.1080/0003684042000233221
Khalid, H.A. Alqudair (2005), “Does Trade Openness lead to Big Government Size”? Paper
presented by the Ecomod Network and the Middle East Economic Association
held at Free University of Brussels Belgium.
Liberati, Paolo. (2013), “Government Size and Trade Openness: Some Additional Insights”, Munich Personal RePEc Archive (MPRA) Paper No. 43561. January. Http://mpra.ub.uni-meenchen.de/43561. Retrived 13th August, 2014.
Liberati, Paolo. (2006), “Trade Openness, Financial Openness and Government Size”, Università di Urbino “Carlo Bo”, ISE.
Molana, H., Montagna, C., and Violato M. (2004), “On the Causal Relationship between Trade Openness and Government Size: Evidence from 23 OECD Countries”, mimeo.
Nahidi, Mohammadreza.M., Parvizkhanlou, Karan, J. and Badri, Arashketabforoush. (2013), “An Impact of Trade and Financial-Openness on Government Size: A Case Study for ECO”, International Journal of Advanced Studies in Humanities and Social Science, Vol. 1, Issue 8, pp. 1013-1017
Parvizkhanlou, Karam.F. (2014), “An Impact of Trade and Financial Openness on Government Size: A Case Study for ECO”, IRC’S International Journal of Multidisciplinary Research in Social & Management Sciences, Vol. 2, no. 2, pp.1-4.
Pesaran, M. Hashem., Shin, Yongcheol and Smith, J. Richard (2001), “Bounds Testing Approaches to the Analysis of Level Relationships”, Journal of Applied Econometrics, 16, 289-326.
http://dx.doi.org/10.1002/jae.616
Rivas, Mª Dolores. G., Sort, Marcela. S. and Rodríguez, Estela. S. (2009), “The Relationship between Trade Openness and Public Expenditure”. The Spanish case, 1960-2000. Documento de Trabajo 2009-06, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
Rodrik, Dani (1997), “Has Globalization Gone Too Far”, Institute for International Economics.Washington D.C.
Rodrik, Dani. (1998), “Why Do More Open Economies Have Bigger Governments”? Journal of Political Economy, 106 (5), 997-1032.
http://dx.doi.org/10.1086/250038
Ruggie, John.G. (1982), “International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order”, International Organization, 36, 379–415.
http://dx.doi.org/10.1017/S0020818300018993
Sanz, Ismael and Velázquez, Francisco. J. (2003), “Does Globalization increase Government Size? An Analysis of the Effects of Foreign Direct Investment on Total Government Expenditures and its Components”, mimeo.
Shahbaz, M., Rehman, H.Ur, and Amir, N. (2010), “The Impact of Trade and Financial-
Openness on Government Size: A Case Study of Pakistan”, Journal of Quality and Technology Management, Vol. VI, Issue 1, pg. 105 – 118.
Swee Kueh, Jerome Swee-Hui and Puah, Chin-Hong and Wong, Chiew-Meu (2008), “Bounds Estimation for Trade Openness and Government Expenditure Nexus of ASEAN-4 Countries”, MPRA Paper No. 12351
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Published
2014-10-24
How to Cite
Aregbeyen, O., & Ibrahim, T. M. (2014). Trade Openness-Government Size Nexus: Compensation Hypothesis Considered for Nigeria. Journal of Reviews on Global Economics, 3, 364–372. https://doi.org/10.6000/1929-7092.2014.03.27
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