Geography Reference
In-Depth Information
combined income of less than that of India and most are actually declining
in wealth in both absolute as well as relative terms (Collier 2007), while
most of the fast-growing economies in the developing world have large
populations with large cities. As such, the Alesina and Spolaore arguments
in favour of smallness of countries therefore appear to be rather problem-
atic, and it may be the case that their arguments relate primarily only to
the rich countries. Yet, this raises the questions as to why the advantages
of national smallness should be related to wealthy countries while the
advantages of scale should be related to poorer countries. In a sense, these
contrasting relationships between national scale and wealth mirror the
contrasting relationships between urban scale and productivity discussed
in Chapter 7.
On this point, much of the resolution of these apparently paradoxical
findings arises naturally from the economic geography and multinational
arguments in this topic which suggest that it is the relationship between
the size and openness of a country and its 'home market' size which is
critical, and not just the relationship between size and openness (Venables
2010). This is because the arguments in this topic actually imply that the
importance of the effect of country size depends not on the size of the
country, but rather on the home market effect attainable to its domestic
firms. This in turn is seen to depend not just on the degree of trade open-
ness of the country to the global economy - defined in terms of having low
trade barriers - but on two additional features. These are first, the levels
of economic integration (including all regulatory and legal enforcement
issues) that a country shares with all of its adjacent and neighbouring
countries, and second, also on having sufficiently large agglomerations
above a certain threshold in which global firms can invest.
As Venables (2010) and Collier (2007) point out, having good institu-
tions, open markets and investing in infrastructure are not sufficient for
growth, because the outcomes of good institutional and infrastructure
policies also depend on what your neighbouring countries do. As such,
many small and poor countries are highly vulnerable in the current phase
of globalization for two reasons. First, they lack the economies of scale,
agglomeration and home market effects which are necessary for growth
in today's global environment (Collier 2007; Venables 2010). Almost all
of the fast growing developing countries are large and contain large cities.
Second, many of these countries suffer from a chronic lack of geographical
accessibility which they are largely incapable of overcoming by their own
efforts (Collier 2007).
For small and geographically isolated island nations, many of which
voted for independence in the post-war era and are included in the evi-
dence cited by Alesina and Spolaore (2005) in support of their arguments,
