Analysis of the validity of the compensation and efficiency hypothesis for BSEC

Globalization is a process that affects countries economically, socially, and politically, with its dynamic structure in today's world, where national borders have almost disappeared. Open countries have increased government interventions to prevent the risks they may face. The Compensation and Efficiency Hypothesis is approved in the economic literature to make sense of this relationship between trade openness and government expenditures. This study analyzed the validity of the compensation and efficiency hypotheses for BSEC. Analysis was carried out using the Westerlund (2007) panel cointegration method, based on annual data for the period 2000-2022. Augmented Mean Group Estimator (AMG) was used to calculate long-term coefficients. Results from AMG estimator; It has been shown that the compensation hypothesis is valid in Georgia, Moldova and Serbia, and the efficiency hypothesis is valid in Türkiye, Romania, Russia, Bulgaria and Greece. On the other hand, no significant relationship could be detected for Albania, Azerbaijan, Armenia, Ukraine and North Macedonia. Finally, it is concluded that there is one-way causality between the variables.