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How Does Trade Openness Influence Budget Deficits in Developing Countries?

Author

Listed:
  • Jean-Louis Combes

    (CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Tahsin Saadi Sedik

Abstract

This paper analyses the effects of trade openness on budget balances by distinguishing the effects of natural openness from those of trade policy. Revealed indicators of natural openness and trade policy are computed. Using GMM-system estimator, the econometric analysis focuses on 66 developing countries over 1974-1998. The results show that trade openness increases a country's exposure to external shocks. This enforces the negative impact on budget balances of terms of trade instability. Additionally, trade openness influences budget balances through several other channels

Suggested Citation

  • Jean-Louis Combes & Tahsin Saadi Sedik, 2006. "How Does Trade Openness Influence Budget Deficits in Developing Countries?," Post-Print hal-00023333, HAL.
    • Handle: RePEc:hal:journl:hal-00023333
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    References listed on IDEAS

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