The relationship between trade openness and government size

Nowadays, the rapid growth of foreign trade causes countries to face more external shocks. The countries in this situation can use public expenditures to protect them from the effects of external shocks. In the literature there are alternatives to the approach described as the Compensation Hypothesis. One of these alternatives includes the approach that foreign trade has strengthened the private sector, while the other one suggests that foreign trade leads to de-industrialization. Turkey's economy has shown a rapid growth in foreign trade after the 1980s. Therefore, more affected by external shocks originating from the foreign trade of Turkey's economy has been transformed into a structure. Working in the presence of the public regarding size and openness for Turkey's economy was examined. The ARDL Bound Test was used to explain the long-term relationship between the years 1983-2017 and the time series analysis. Toda-Yamamato Causality Test was used to explain the short term relationship. Findings revealed the existence of long-term relationship between two variables, and the results of causality tests revealed the existence of a one-way relationship from public size to external openness. Therefore, there was no finding in favor of Compensation Hypothesis, Efficiency Hypothesis and Deindustrialization Hypothesis.