The compensation hypothesis predicts a positive causation from international economic openness to the size of the public sector, as governments step in to perform a risk mitigating role to counterbalance the increasing exposure to external risk and the economic dislocations caused by growing...

In the literature on the effects of economic globalisation, the compensation hypothesis predicts a positive relationship between trade openness and the size of the public sector, as governments perform a risk mitigating role in the face of internationally generated risk and economic...