The Causal Relationship between Trade Openness and Government Size in South Africa

Authors

  • Glenda Maluleke

Keywords:

government size; trade openness; economic growth; granger causality

Abstract

This study empirically examines the causality between government size and trade openness
including economic growth as an intermittent variable from 1980 to 2018 in South Africa. The study
employed the Johansen-Juselius cointegration and Granger causality test. The results revealed that
there is a long-run relationship between government size and trade openness. The Granger causality
test revealed that there is a unidirectional causality from trade openness to government size.
Therefore, the study does find support for a compensation hypothesis in South Africa.

References

Abizadeh, S. (2005). An analysis of government expenditure and trade liberalization. Applied
Economics, 37(16):1881-1884.
Adsera, A. & Boix, C. (2002). Trade, democracy, and the size of the public sector: the political
underpinnings of openness. International Organization, 56(2):229–262.
Alesina, A. & Wacziarg, R. (1998). Openness, country size and government. Journal of Public
Economics, 69: 305-321.
Amin, S. B. & Murshed, M. (2016). Causal relationship between government size and trade openness
in Bangladesh: an empirical analysis. Dhaka University Journal of Business Studies, 1(1): 105-126.
Anoruo, E. & Ahmad, Y. (1997). Openness and economic growth: evidence from selected ASEAN
countries. The Indian Economic Journal, 47(3):110-117.
Aregbeyen, O. O. & Ibrahim, T. M. (2014). Trade openness-government size nexus: compensation
hypothesis considered for Nigeria. Journal of Review on Global Economics, 3:364-372.
Aydogus, I. & Topcu, M. 2013. An investigation of co-Integration and causality between trade
openness and government size in Turkey. International Journal of Economics and Financial Issues,
3(2):319-323.
Barro, R. (1991). Economic growth in a cross section of countries. Quarterly Journal of Economics,
106: 407–444.
Bayat, T.; Tasar, I. & Kayhan, S. (2017). The validity of efficiency and compensation hypothesis for
G7 countries. Ecoforum Journal, 6(2).
Benarroch, M. & Pandey, M. (2008). Trade openness and government size. Economics Letters,
101(3): 157-159.
Benarroch, M. & Pandey, M. 2012. The Relationship between Trade Openness and Government Size:
Does Disaggregating Government Expenditure matter? Journal of Macroeconomics, 34:234-252.
Cameron, D. R. (1978). The expansion of the public economy. American Political Science Review,
72(4): 1243-1261.
Epifani, P. & Gancia, G. 2008. Openness, government size and the terms of trade. The Review of
Economic Studies, 76(2): 629-668.
Fielding, D. (1997). Modelling the determinants of government expenditure in Sub-Saharan Africa.
Journal of African Economies, 6(3):377-390.
Garrett, G. (2001). Globalization and government spending around the world. Studies in Comparative
International Development, 35(4):3-29.
Granger, C. W. J. (1988). Some Recent Developments in a Concept of Causality. Journal of
Econometrics, 16(1):121-130
Huang, W. & McDonnell, G. (1997). Growth of government expenditure: the case of USA. The
Social Science Journal, 34(3):311-322.
Ibrahim, T. (2015). The causal link between trade openness and government size: evidence from five
largest economies of Africa. International Journal of Business and Economic Science Applied
Research, 8(1):121-136.
Iversen, T. & Cusack, T. (2000). The causes of welfare state expansion: deindustrialization or
globalization? World Politics, 52:313-349.
Landau, D. (1983). Government expenditure and economic growth: a cross-country study. Southern
Economic Journal, 45: 440-458
Liberati, P. (2007). Trade openness, capital openness and government size. Journal of Public Policy,
27(2):215–247.
Malefane, M. R. & Odhiambo, N. M. (2018). Impact of trade openness on economic growth:
empirical evidence from South Africa. Economia Internazionale / International Economics,
71(4):387-416.
Mallick, H. (2008). Government spending, trade openness and economic growth in India: A time
series analysis. Available [online] at http://www.cds.edu/wp-content/uploads/2012/09/wp403.pdf
downloaded 31 July 2018.
Mavrov, H. (2007). The size of government expenditure and the rate of economic growth in Bulgaria.
Economic Alternatives, 1:52-63.
Molana, H.; Montagna C. & Violato M. (2004). On the causal relationship between trade openness
and government size: evidence from 23 OECD countries. Mimeo.
Mourao, P. (2007). Has trade openness increased all Portuguese public expenditures? A detailed timeseries
study. Financial Theory and Practice, 31(3): 225–247.
Odhiambo, N. M. (2005). Financial development and economic growth in Tanzania: a dynamic
causality test. African Finance Journal, 7(1):1-17.
Odhiambo, N. M. (2008). Financial depth, savings and economic growth in Kenya: a dynamic causal
relationship. Economic Modelling, 25(4):704-13.
Rodrik, D. (1998). Why do more open economies have bigger governments? Journal of Political
Economy, 106(5):997-1032.
Sener, S.; Bayrakdar, S. & Hacioglu, V. (2015). The Analysis for the Validity of Compensation and
Efficiency Hypotheses in Turkey between 1975 and 2013. Procedia Social and Behavioral Sciences,
195:624-631.
Sikwila, M.; Ruvimbo, N. & Mosikari, T. (2014). Trade Openness and GDP Growth Nexus in South
Africa. Global Journal of Management and Business Research, 14(7): 1-7.
United Nations Economic Commission for Africa (UNECA). (2018). African Continental Free Trade
Area: Towards the Finalization of Modalities on Goods. Addis Ababa, Ethiopia

Downloads

Published

2020-05-26

Issue

Section

Business Administration and Business Economics