The Impact of Trade and Financial Globalization on Government Size in Iran's Economy

The purpose of this study is to evaluate the impact of economic globalization on government size in Iran's economy. An Autoregressive Distributed Lag (ARDL) modeling approach is employed to estimate empirical model using the time series data over the period 1973-2007. Trade openness and foreign direct investment are employed as indicators of trade and financial globalization, respectively. Moreover, some control variables are included in the empirical model. They comprise economic growth, industrialization and urbanization growth. The results of the paper confirm that trade openness has positive and statistically significant effect on the government size in Iran. This means an increase in trade openness leads to increase government spending. However, the findings show that the effect of financial globalization on government size is not statistically significant.