Effect of Trade Globalization on Government Size (A Case-study of Developing Countries with Average Income)

The relation between trade globalization was first proposed by Rodrik (1998). According to Rodrik theory, in more open countries in terms of trade, government size is larger; because the government in facing international turmoil has a risk compensation role. Hence, the present study tries to analyze the how and degree of trade globalization effects on the government size growth in a selection of developing countries with average, including Iran, in the period of 2000 to 2011. For this purpose, ratio of total import and export to Gross Domestic Production (GDP) was used as an indicator of trade globalization and ratio of government expenses to GDP was used as an indicator of government size. Results of pattern estimation based on panel data regression shows that trade globalization has a positive and meaningful effect on government size in this group of countries, and Rodrik theory is supported.