The Compensation and Efficiency Hypotheses: New Evidence for Turkey With Rals Cointegration and Bootstrap Causality Tests

Kılıçarslan Z., Dumrul C., Dumrul Y.

Erciyes Akademi, vol.35, no.4, pp.1518-1533, 2021 (Peer-Reviewed Journal)

  • Publication Type: Article / Article
  • Volume: 35 Issue: 4
  • Publication Date: 2021
  • Doi Number: 10.48070/erciyesakademi.1013147
  • Journal Name: Erciyes Akademi
  • Journal Indexes: EBSCO Education Source
  • Page Numbers: pp.1518-1533
  • Kayseri University Affiliated: Yes

Abstract

Together with trade openness and globalization, the risks and uncertainties faced by countries are also increasing. Government expenditure is one of the important policy tool used to minimize the effects of these risks. Increases and decreases in government expenditures due to openness and globalization are examined in the literature within the framework of compensation and efficiency hypotheses. In this study, the validity of Turkey's compensation and efficiency hypotheses was examined using annual data for the period 1970-2018 and RALS co-integration and bootstrap causality tests. The results of the analysis support the efficiency hypothesis, which states that the increase in trade openness affects government expenditures negatively, and the compensation hypothesis, which states that the increase in globalization increases government expenditures. In addition, according to the results of the bootstrap causality test, there is a one-way causality relationship from trade openness to government expenditures.