Impact of Trade and Capital Openness on the Government Size of Russia

Dhyani Mehta


Relevance: With Russia's economy and trade growing significantly since 2014, there is a need to examine the impact of economic openness on government expenditure, given the country's fiscal and trade reforms.

Research Objective: This study aims to measure the impact of economic openness on government expenditure (government size) by categorizing it into trade and capital openness. The Auto Regressive Distributed Lag (ARDL) model is used to measure the long-run and short-run impact of economic openness on government size.

Data and Methods: Annual time series data from the World Bank Open Data on World Development Indicators (WDI) from 1997 to 2021 is used. The study examines the relationship between government expenditure, trade openness, and capital openness.

Results: The findings show that higher trade openness leads to a significant increase in government size, while more capital openness results in a reduction in the size of the government. The study also highlights the impact of current account deficits and national income on government size, with liberal trade policies leading to a widening current account deficit. The positive correlation between national income and government size supports Wagner's Law of "Increasing State Activity."

Conclusion: The study suggests that policymakers should adopt a careful approach to liberal policies that encourage trade and capital openness, as an overly liberalized approach could harm macroeconomic factors such as fiscal and current account balances. The study also underscores the challenges that nations like Russia face when entering the global markets for goods beyond oil exports.


Economic Openness, Trade Openness, Capital Openness, Government Size, National Income, Current Account Deficit

Full Text:



Acquah, H. de-G. (2010). Comparison of Akaike information criterion (AIC) and Bayesian information criterion (BIC) in selection of an asymmetric price relationship. Journal of Development and Agricultural Economics, 2(1), 1–6.

Adserà, 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(3), 305–321.

Avelino, G., Brown, D. S., & Hunter, W. (2005). The Effects of Capital Mobility, Trade Openness, and Democracy on Social Spending in Latin America, 1980–1999. American Journal of Political Science, 49(3), 625–641.

Balle, F., & Vaidya, A. (2002). A regional analysis of openness and government size. Applied Economics Letters, 9(5), 289–292.

Banerjee, A., Dolado, J. J., & Mestre, R. (1998). Error-correction mechanism tests for cointegration in a single-equation framework. Journal of Time Series Analysis, 19(3), 267–283.

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(1), 239–252.

Bernaure, T., & Achini, C. (2000). From `Real’ to `Virtual’ States? European Journal of International Relations, 6(2), 223–276.

Borcherding, T. E., Ferris, J. S., & Garzoni, A. (2005). Growth in the real size of government since 1970. In Handbook of public finance (pp. 77–108). Springer.

Burange, L. G., Ranadive, R. R., & Karnik, N. N. (2019). Trade Openness and Economic Growth Nexus: A Case Study of BRICS. Foreign Trade Review, 54(1), 1–15.

Busemeyer, M. R. (2009). From myth to reality: Globalisation and public spending in OECD countries revisited. European Journal of Political Research, 48(4), 455–482.

Cameron, D. R. (1978). The Expansion of the Public Economy: A Comparative Analysis. American Political Science Review, 72(4), 1243–1261.

Cusack, T. R. (1997). Partisan politics and public finance: Changes in public spending in the industrialized democracies, 1955–1989. Public Choice, 91(3), 375–395.

Dash, R. K., & Parida, P. C. (2012). Services trade and economic growth in India: an analysis in the post-reform period. International Journal of Economics and Business Research, 4(3), 326.

De Benedictis, L., & Tajoli, L. (2008). Similarity in trade structures, integration and catching-up. The Economics of Transition, 16(2), 165–182.

de Mendonça, H. F., & Cacicedo, T. (2015). Size of government and economic growth in the largest Latin American country. Applied Economics Letters, 22(11), 904–910.

De Mendonça, H. F., & De Oliveira, A. J. (2019). Openness and government size: A new empirical assessment’’. Economics Bulletin, 39(2), 982–995.

Dixit, V. (2014). Relation between Trade Openness, Capital Openness and Government Size in India. Foreign Trade Review, 49(1), 1–29.

Dreher, A. (2006). Does globalization affect growth? Evidence from a new index of globalization. Applied Economics, 38(10), 1091–1110.

Dreher, A., Gaston, N., & Martens, P. (2008). Consequences of Globalisation Reconsidered: Applying The KOF Index. In Measuring Globalisation (pp. 75–171). Springer New York.

Epifani, P., & Gancia, G. (2009). Openness, Government Size and the Terms of Trade. Review of Economic Studies, 76(2), 629–668.

Esaku, S. (2021). The long- and short-run relationship between the shadow economy and trade openness in Uganda. Cogent Economics & Finance, 9(1).

Ferris, J. S. (2003). Do alternative measures of government result in alternative explanations for government size? Economics Bulletin, 8(4), 1–11.

Figlio, D. N., & Blonigen, B. A. (2000). The Effects of Foreign Direct Investment on Local Communities. Journal of Urban Economics, 48(2), 338–363.

Garen, J., & Trask, K. (2005). Do more open economies have bigger governments? Another look. Journal of Development Economics, 77(2), 533–551.

Garrett, G., & Mitchell, D. (2001). Globalization, government spending and taxation in the OECD. European Journal of Political Research, 39(2), 145–177.

Grubert, H. (2009). 5. Tax Planning by Companies and Tax Competition by Governments: Is There Evidence of Changes in Behavior? In International taxation and multinational activity (pp. 113–142). University of Chicago Press.

Hicks, A. M., & Swank, D. H. (1992). Politics, Institutions, and Welfare Spending in Industrialized Democracies, 1960–82. American Political Science Review, 86(3), 658–674.

Hoekman, B., & Djankov, S. (1997). Determinants of the Export Structure of Countries in Central and Eastern Europe. The World Bank Economic Review, 11(3), 471–487.

Islam, M. Q. (2004). The long run relationship between openness and government size: evidence from bounds test. Applied Economics, 36(9), 995–1000.

Islam, M. S., Alsaif, S. S., & Alsaif, T. (2022). Trade Openness, Government Consumption, and Economic Growth Nexus in Saudi Arabia: ARDL Cointegration Approach. SAGE Open, 12(2).

Iversen, T., & Cusack, T. R. (2000). The Causes of Welfare State Expansion: Deindustrialization or Globalization? World Politics, 52(3), 313–349.

Kaufman, R. R., & Segura-Ubiergo, A. (2001). Globalization, Domestic Politics, and Social Spending in Latin America: A Time-Series Cross-Section Analysis, 1973–97. World Politics, 53(4), 553–587.

Kiforenko, O. (2022). Ukraine-EU trade relations: statistical analysis of the total trade turnover. International Journal of Economics and Business Research, 23(1), 1.

Kimakova, A. (2009). Government size and openness revisited: the case of financial globalization. Kyklos, 62(3), 394–406.

Kittel, B., & Winner, H. (2005). How reliable is pooled analysis in political economy? The globalization-welfare state nexus revisited. European Journal of Political Research, 44(2), 269–293.

Liberati, P. (2007). Trade Openness, Capital Openness and Government Size. Journal of Public Policy, 27(02), 215.

Lin, F., Li, B., & Sim, N. C. S. (2014). Trade openness and government size of small developing countries. Economics of Transition, 22(4), 783–808.

Mahmood, N., Shakil, M. H., Akinlaso, I. M., & Tasnia, M. (2019). Foreign direct investment and institutional stability: who drives whom? Journal of Economics, Finance and Administrative Science, 24(47), 145–156.

Malefane, M. R., & Odhiambo, N. M. (2021). Trade Openness and Economic Growth: Empirical Evidence from Lesotho. Global Business Review, 22(5), 1103–1119.

Meinhard, S., & Potrafke, N. (2012). The Globalization-Welfare State Nexus Reconsidered. Review of International Economics, 20(2), 271–287.

Melchior, A. (2019). Russia in world trade: Between globalism and regionalism. Russian Journal of Economics, 5(4), 354–384.

Ngepah, N. N. (2014). International trade and agricultural production: Evidence from the Southern African Development Community sub-region. Development Southern Africa, 31(3), 494–514.

Ngepah, N., & Udeagha, M. C. (2018). African Regional Trade Agreements and Intra-African Trade. Journal of Economic Integration, 33(1), 1176–1199.

Ngepah, N., & Udeagha, M. C. (2019). Supplementary Trade Benefits of Multi-Memberships in African Regional Trade Agreements. Journal of African Business, 20(4), 505–524.

Nguea, M. (2020). Openness and Government Size in Sub-Saharan African countries. Economics Bulletin, 40(4), 2669–2676.

Oates, W. E. (2005). Toward A Second-Generation Theory of Fiscal Federalism. International Tax and Public Finance, 12(4), 349–373.

Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326.

Ram, R. (2009). Openness, country size, and government size: Additional evidence from a large cross-country panel. Journal of Public Economics, 93(1–2), 213–218.

Rani, R., & Kumar, N. (2022). Wagner hypothesis in India: An empirical investigation from pre and post reform period. Journal of Public Affairs, 22(1), e2395.

Rathnayaka Mudiyanselage, M. M., Epuran, G., & Tescașiu, B. (2021). Causal Links between Trade Openness and Foreign Direct Investment in Romania. Journal of Risk and Financial Management, 14(3), 90.

Rodrik, D. (1998). Why do More Open Economies Have Bigger Governments? Journal of Political Economy, 106(5), 997–1032.

Ruggie, J. G. (1982). International regimes, transactions, and change: embedded liberalism in the postwar economic order. International Organization, 36(2), 379–415.

Saibu, O. M., Ikechukwu, O. M., & Nwosa, P. I. (2022). Dynamic Effects of Foreign Aid, Trade Openness and Fdi on Economic Growth for West African Countries. The Journal of Developing Areas, 56(2), 49–63.

Shelton, C. A. (2007). The size and composition of government expenditure. Journal of Public Economics, 91(11–12), 2230–2260.

Shepotylo, O., & Tarr, D. G. (2013). Impact of WTO Accession on the Bound and Applied Tariff Rates of Russia. Eastern European Economics, 51(5), 5–45.

Sims, C. A. (1980). Macroeconomics and Reality. Econometrica, 48(1), 1.

Sinn, H.-W. (2002). The new systems competition. National Bureau of Economic Research.

Svejnar, J. (2002). Transition Economies: Performance and Challenges. Journal of Economic Perspectives, 16(1), 3–28.

Swank, D. (2001). Mobile capital, democratic institutions, and the public economy in advanced industrial societies. Journal of Comparative Policy Analysis, 3(2), 133–162.

Tajoli, L. (2022). Too much of a good thing? Russia-EU international trade relations at times of war. Journal of Industrial and Business Economics, 49(4), 807–834.

Xu Wenhong. (2021). Basic Concepts of Russia’s Fiscal Policy: Experience for China Part 2. Studies on Russian Economic Development, 32(2), 133–140.

Yakubu, Z., Loganathan, N., Sethi, N., & Golam Hassan, A. A. (2021). Do Financial Development, Trade Openness and Political Stability Complement for Egypt’s Economic Growth? Journal of International Commerce, Economics and Policy, 12(01), 2150001.


Copyright (c) 2023 Dhyani Mehta

Сertificate of registration media Эл № ФС77-80764 от 28.04.2021
Online ISSN 2412-0731