The Effect of Financial Liberalization on Government Size: A Case of ASEAN

Abstract

This study is about the effect of financial liberalization on government size in the case of ASEAN countries. The objectives of the study are: to consider the overall government size, the degree of financial liberalization and to examine the effect of financial liberalization on government size in the case of ASEAN countries. This research based on Erauskin (2010) s’ work which employed Portfolio Approach. These are base on the secondary data, panel data including 3 countries in ASEAN countries which are Malaysia, Singapore and Thailand since the annual data during 1975-2005. The quantitative analysis such as Panel Unit Root Test and Panel Model, both Fixed Effects Model and Random Effects Model, are used in this research. The result of the research showed that the change in financial liberalization that measures from De Facto, the change in ratio of real government revenue to wealth, and the change in degree of openness have positive effect on the change in government size. However, the result found that the financial liberalization that measures from    De Jure method did not affect the change in government size. In conclusion, the financial liberalization policy should be conducted with cautious and appropriate.