Document Type: Original Article


1 Assistant professor & Member of Academic Staff, Department of Economic, Tabriz Branch, Islamic Azad University, Tabriz, Iran

2 Master of Economic Sciences, Tabriz branch, Islamic Azad University, Tabriz, Iran


This paper concentrates on the relationship between trade openness, financial openness and government size concerning the ECO. Compensation hypothesis explains that trade-openness is positively interconnected with the government size. Also, financial openness has negative relationship with the government size. Using panel data for ECO countries during 2000-2009, we have found evidence of a positive relationship between trade-openness and government size and also a negative relationship between financial openness and the size of government.


Alesina, A, and Wacziarg, R. (1998). “Openness, Country Size and Government”, Journal of Public Economics, 69, 305–321.

Andersen, TM, Rasmussen, S., and Sorensen, R. (1996). “Optimal Fiscal Policy in Open Economies with Labor Market Distortions”. Journal of Public Economics, 63: 103-117.

Benarroch, M, and Pandey, M. (2008). “Trade Openness and Government Size”, Economics Letters, 101: 157-159.

Bretschger, L, and Hettich, F. (2002). “Globalization, Capital Mobility and Tax Competition: Theory and Evidence for OECD Countries”, European Journal of Political Economy, 18: 695-716.

Cameron, DR. (1978). “The Expansion of the Public Economy: a Comparative Analysis”, The American Political Science Review, 72: 1243–1261.

Devereux, MB. (1991). “The Terms of Trade and the International Coordination of Fiscal Policy”, Economic Inquiry, 29: 720-736.

Epifani P, and Gancia, G. (2008). “On Globalization and the Growth of Governments”, CEPR DP 6065.

Garen J, Trask K. (2005). “Do more open economies have bigger governments? Another look”, Journal of Development Economics, 77: 533-551.

Islam, MQ. (2004). “The long run relationship between openness and government size: evidence from bounds test”, Applied Economics, 36: 995-1000.

Liberati, P. (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.

Quijano, and Gaecia. (2005), “Causality and Determinants of Government Spending and Economic Growth: The Philippines experience”, mimeo.

Ram, R. (2009), “Openness, country size, and government size: Additional evidence from a large cross-country panel”, Journal of Public Economics, 93: 213–218.

Rodrik, D. (1997), “Has globalization gone too far”, Institute for International Economics, Washington D.C.

Rodrik, D. (1998), “Why do more open economies have bigger governments?”, Journal of Political Economy, 106(5): 997-1032.

Rodrik, D. (1998). “Why do more open economies have bigger governments?”, Journal of Political Economy 106: 997–1032.

Shahbaz, M, Ur Rehman, H, 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, 6: 105-118.

Swank, D. (2002), “Global Capital, Political Institutions and Policy Change in Developed Welfare States”, Cambridge University Press, Cambridge.

World Bank (2009). World Development Indicators CD-ROM 2009, Washington, DC.