This paper considers the causal relationship between fiscal variables and economic growth in mainland China. A six-variable BVAR model is used to investigate dynamic relationship between nondefense spending, defense spending, taxation, budget deficit, the openness of the economy, and economic growth. The period to be considered in 1951 to 1989. A bidirectional causality exists from defense spending to the openness of the economy. One-way causality runs from fiscal variables to the openness of the economy. Therefore, a more effective fiscal policy instrument for promoting the open door policy is needed.
