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

Abstract

Along with openness and globalization, the risks and uncertainties faced by countries are also increasing. Government expenditures are one of the important policy tools 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. In the analyzes, it is estimated whether both trade openness and globalization affect government expenditures. In the study, results have been reached to support the efficiency hypothesis, which states that the increase in trade openness negatively affects government expenditures. The compensation hypothesis states that the increase in globalization increases government expenditures. In addition, according to the results of the bootstrap causality test, it was found that there is a one-way causality relationship from trade openness to government expenditures.