Analysis of the size of the public sector after 1980 in the Next-11 countries

This study aims to investigate the evolution of government size in the Next-11 countries after 1980, the factors influencing its magnitude, and the determination of the optimal level of government size. To identify the determinants of government size, the Durbin-H Panel Cointegration Test and the Augmented Mean Group (AMG) estimator were employed. The optimal government size for each country was analysis using the ARDL Bounds Testing approach. The main empirical findings indicate that relative prices are the most significant variable in explaining government size. Moreoveri the results demonstrate that per capita income, urbanization rate, total population, financial openness, and trade aopenness account for government size to a considerable extent in most countries. Finally, the analysis of optimal government size reveals that the Armey curve is valid for three countries –Indonesia, the Philippines, and Iran- with their optimal government sizes calculated as 8%, 10,5%, and 11%, respectively. In addition, the results suggest that there exists a relationship between government size and economic growth in South Korea and Vietnam. However, contrary to the inverted-U shape predicted by the Armey curve, this relationship follows a J-curve pattern.