The Analysis for the Validity of Compensation and Efficiency Hypotheses in Turkey between 1975 and 2013

The relation between trade openness and government size is examined under the compensation hypothesis and efficiency hypothesis in the literature. Therefore, in this paper, we examine the government size and trade openness under the theoretical framework of compensation and efficiency hypotheses. The compensation and efficiency hypotheses are tested in the long run for Turkey between the periods 1975 and 2013. In our model the government size is described as a function of trade openness. The existence of unit root is tested, then cointegration and Granger causality tests are implemented. Empirically no causality is diagnosed between government size and trade openness. In result, we found that both hypotheses are not valid for Turkey in the long run. This result is also supported by various works in the literature.