THE EFFECT OF TRADE OPENNESS AND INCOME ON THE SIZE OF A GOVERNMENT

Abstract

This paper examines the effect of trade openness and per capita GDP on the size of government for Turkey and South Korea by means of ARDL approach to co-integration. We use different proxies to measure the size of government because not all measures of government size are appropriate to be employed in the estimates. Among the three (four) different measures of government size of Korea (Turkey), only one for each country has a co-integrating relationship with openness and per capita GDP. Long run coefficients suggest that per capita GDP has a positive and significant effect on the government sizes for Turkey and Korea, implying the validity of the Wagner's law. However, while openness has a negative effect on government size for Turkey, it has a positive effect for Korea. Our results clearly highlight the importance of choosing an appropriate proxy for government size to reach robust and consistent results.