Government size and growth: accounting for economic freedom and globalization.

Abstract

We examine the relationship between government size and economic growth,controlling for economic freedom and globalization, and using BayesianAveraging over Classical Estimates in a panel of rich countries.Countries with big government have experienced above average increasesin the KOF globalization index and in the Fraser institute’s Economicfreedom index. To maintain comparability with earlier studies, we usetwo sample periods: 1970–1995 and 1970–2005.

Governmentsize robustly correlates negatively with growth. We also find someevidence that countries with big government can use economic opennessand sound economic policies to mitigate negative effects of biggovernment.

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