Abstract
The world is composed of countries that are heterogeneous in various dimensions. One dimension this chapter focuses on is size, in particular, demographic, economic, and geographic sizes. How does the size of a country affect its level and growth of income (per capita GDP)? Do small countries perform better than large countries because of their smallness, or do they perform worse? Emerging powers in the world, China and India, stand out in population size and have large territory. Is their enormous size advantageous or detrimental to income growth? Answers to this question would provide some clue to the critical issue of whether or not these countries continue to grow rapidly and become economic and political superpowers on par with the USA in the near future. The chapter explores these issues with the assistance of economic theories and statistical (econometric) analysis.
The chapter starts with providing a summary of theoretical arguments of why and how the size of a country matters for the level and growth of income (per capita GDP), drawing mainly on economic theories. Theoretically, country size has both positive and negative effects through various mechanisms; thus whether or not the size is advantageous to economic performance can be answered only empirically. The next section conducts statistical (regression) analysis that relies on the theoretical arguments and improves upon existing works in terms of choices of variables in regression models and data. Finally, based on results of statistical analysis, the above questions regarding economic performance of China and India are explored.
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Notes
- 1.
According to the discussions above, given population size, GDP does not have negative effects on growth and income. In regression analysis below, effects of demographic and economic sizes are examined in different equations because the two sizes are highly correlated. Under such specifications, theoretical mechanisms predict both positive and negative effects of GDP because effects of population size are not controlled for.
- 2.
In order to increase the number of countries, countries with a small number of missing values too are included in the sample.
- 3.
Physical capital accumulation is investment in equipment (such as machines and tools) and structure (such as buildings and physical infrastructure), while human capital accumulation includes expenditures on education, health, and job training.
- 4.
For a small numbers of countries that have data starting from 1961, the value in 1961 is used.
- 5.
The other indices are voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, and control of corruption. Only one index is included in regression because of high (at least greater than 0.8) correlations between the indicators.
- 6.
Desmet et al. (2012) also obtain similar results in specifications that include ethnolinguistic diversity as an independent variable, but the coefficient of the log of population is not significant at 10% level in all specifications.
- 7.
In Column (3), the coefficient of the sub-Saharan African dummy is significantly negative, and that of the Latin American dummy is significantly positive. The large and negative coefficient of the African dummy might be a major reason for the coefficient of the share of shores to be insignificant. In Column (4), the coefficient of the proportion of Protestants is significantly negative at 10% level.
- 8.
Although casual effects of independent variables are not assured, words such as “affect” and “effect” are used for ease of explanation.
- 9.
Since the log of population in regressions is an arithmetic average of values over the sample period, the average population is a geometric average.
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Yuki, K., Cen, Z. (2018). Effects of the Size of a Country on Its Economic Performance. In: Tadokoro, M., Egashira, S., Yamamoto, K. (eds) Emerging Risks in a World of Heterogeneity. Evolutionary Economics and Social Complexity Science, vol 10. Springer, Singapore. https://doi.org/10.1007/978-981-10-7968-9_2
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