POLITICAL ECONOMY OF TRADE OPENNESS AND GOVERNMENT SIZE

This paper proposes a theoretical model that may provide useful insights into the relationship between trade openness and the size of government, as well as a possible explanation for the results of empirical tests of such a relationship. We develop a Hecksher-Ohlin model with publicly provided goods, where the level of publicly provided goods is determined in a probabilistic voting framework. In this context, we show that the start of trade may increase or decrease government size depending on the capital-labor ratio in each country.