Impact of economic openness on government size in India Online publication date: Sat, 02-Dec-2023
by Dhyani Mehta; Nikunj Patel; Nisarg A. Joshi; Bhavesh Patel
International Journal of Sustainable Economy (IJSE), Vol. 16, No. 1, 2024
Abstract: The purpose of the study is to examine the impact of economic openness on government size in India, using trade openness and capital openness as indicators of economic openness and net fiscal deficit and current account deficit as control variables. ARDL and NARDL bound test approach was employed by taking annual time series data from 1981 to 2020. The estimates confirm a significant long-run and short-run relationship between dependent variables, i.e., government size and independent variables such as trade and capital openness. Empirical results show that in India, an increase in trade openness influences government size positively whereas capital openness affects government size negatively. These findings are crucial for policymakers and regulatory agencies to frame policies that promote economic openness without jeopardising the balance of other macroeconomic variables. Indian policymakers must carefully frame liberal policies to promote trade and capital openness.
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