Trade, democracy and the size of the public sector: The political underpinnings of openness

To account for the strong and positive correlation found between trade openness and the size of the public sector, scholars have developed theoretical explanations in which politics have remained conspicuously absent in two ways.1 First, why some economies are more open than others has been (implicitly) attributed to parameters exogenous to the political decisions of domestic actors. Second, the presence of a sizable public sector has been merely thought of as an automatic, and in some cases a functional, requirement of a free trade regime. This mechanical link has come in two forms. In Rodrik shows that higher levels of trade integration (coupled with high sectoral concentration in the economy) increase the risks associated with the international business cycle and call for publicly- nanced compensatory programs in favor of the exposed sectors.2 Public expenditure, set by a state purely conceived as a social planner, stabilizes aggregate income and delivers social peace and political stability. In Aukrust argues that the tradeable sector, modeled as an international-price-taker, employs public spending to buy the acquiescence of the non-tradeable sector to low wage increases, therefore ensuring the overall compet