Document Type

Article

Publication Date

2018

Abstract

Does government size increase to compensate for the volatility that arises from openness? We evaluate this compensation hypothesis by focusing on Latin America, whose economic growth in the 2000s has been often attributed to the commodity boom. Panel data regressions show that during the 2003-2010 commodity boom terms of trade volatility has positive effects on government size compared to the earlier 1990-2002 period. This key finding supports the compensation hypothesis, a result robust to dynamic panels allowing for reverse causation from government size to the real economy. Policy implications include diversification of the production structure and strengthening of regulatory framework.

Comments

© 2018 Elsevier Ltd. Original published version available at https://doi.org/10.1016/j.resourpol.2018.08.004

First Page

318

Last Page

328

Publication Title

Resources Policy

DOI

10.1016/j.resourpol.2018.08.004

Included in

Finance Commons

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