What Determines the Size of the Nonprofit Sector?: A Cross-Country Analysis of the Government Failure Theory

Abstract This article is an empirical examination of the government failure theory using a cross-country data set. The government failure theory is represented in the major existing literature as providing a sound explanatory basis for an interesting characteristic of the nonprofit sector, that is, there is a large variability in nonprofit sector size from one place to another. Salamon et al. (Social origins of civil society: An overview, Working Papers of the Johns Hopkins Comparative Nonprofit Sector Project, 2000) examined this theory using the Johns Hopkins Comparative Nonprofit Sector Project (CNP) data set, and consequently rejected the government failure theory. However, by applying the panel analysis approach to the CNP data set, this article shows that the government failure theory should not have been so easily rejected.