Trade openness and bigger governments: The role of country size revisited

Article history: Received 16 May 2014 Received in revised form 31 October 2014 Accepted 1 November 2014 Available online 12 November 2014 This paper revisits the question ofwhymore open countries tend to have bigger governments.We replicate successfully the main results of Ram (2009), who rejects the role of country size as an omitted variable. However, several extensions advise against a hasty conclusion: The results differ substantially depending on the data source used, the timeframe considered, the countries selected, and the way variables are measured. Specifically, we employ newer versions of the Penn World Table (PWT 7.1 and 8.0), allowing us to both extend the number of observations and the timeframe. We find evidence for the claim that smaller countries do indeed have bigger governments, especially when using the PWT 8.0 data, and Ram (2009) findings might be driven by the specific dataset used (PWT 6.1) and the countries included in that sample. Finally, we also conduct quantile regression analyses to pin down atwhich point of the distribution the suggested relationships come out. © 2014 Elsevier B.V. All rights reserved. JEL classification: