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Government Size, Institutions, and Export Performance among OECD Economies

Bournakis, Ioannis and Tsoukis, Christopher (2015): Government Size, Institutions, and Export Performance among OECD Economies. Forthcoming in: Economic Modelling

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Abstract

With a panel of 18 OECD countries, 1980-2005, we investigate the determinants of export performance, in particular the effects of the size of government and institutional features. In a model of endogenous extent of domestically-produced goods, government size has a non-linear effect on export performance; the export-maximising size of government (tax receipts) is around 40-45% of GDP; the best size of productive government spending is around 16% of GDP. Product market and labour market-related rigidities affect negatively the export performance both on their own and via a negative effect on the effectiveness of R&D and slow down the speed of adjustment. Among traditional variables, relative unit labour cost, R&D shares in GDP, TFP growth and human capital show up significantly and with the expected signs.

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