Geography Reference
In-Depth Information
The argument favouring small nation-states is most notably associated
with Alesina and Spolaore (2005). According to Alesina and Spolaore
(2005), the size of country depends on a trade-off between the benefits
of size versus the costs of catering for cultural heterogeneity. On the one
hand, in the Alesina and Spolaore (2005) schema the benefits of being a
large country relate primarily to the efficiency gains in the provision of
public goods, such as monetary and fiscal institutions, police, defence,
health, embassies, national parks, transport infrastructure, the taxa-
tion system bureaucracy, all of which may be associated with economies
of scale. Furthermore, national size also helps with interregional fiscal
transfers, both of a temporary insurance nature or of a more systematic
income distributional nature, since independent states cannot be partially
stabilized by other countries. Indeed, empirical evidence suggests that the
relative size of government spending is inversely related to the size of the
country.
These public good scale benefits associated with large countries are in
contrast with the benefits of being a small country, which arise primarily
in an environment of preference heterogeneity. Such preference hetero-
geneity arises out of local variations in culture, language, ethnicity, and
historical experience (Alesina and Spolaore 2005), and in a context of
heterogeneous preferences the argument is that public goods provided
by a distant capital city government centre will be unsuitable for local
demands. As such, the provision of tailored and localized public goods
which best respond to the needs and preferences of local people is argued
to be much easier if it is determined and delivered locally. Given that
smaller states are perceived to take decisions which are 'closer' to the
people, the argument here therefore is that small states better cater for
cultural preference variations.
From a welfare perspective, the optimum size of a country is therefore
the particular size of the state which maximizes the average level of citizen
welfare, by providing the optimal bundle of public goods which, subject
to certain constraints, takes account of the trade-off between economies
of scale and the need to cater for the heterogeneity of preferences. One of
these constraints highlighted by Alesina and Spolaore (2005) is the fact
that in welfare maximization terms, the optimal size of the state will gener-
ally differ for every good, service or policy. As such, this would lead to an
overlapping maze of borders, which would be inefficient in the presence of
economies of scope or scale. In general, therefore, because of these juris-
dictional problems, higher economies of scale or scope tend to imply fewer
centralized jurisdictions (Alesina and Spolaore 2005).
Allowing for these constraints and caveats, however, and also connect-
ing the Alesina and Spolaore (2005) arguments with the broader economic
