Its the Size of the Market, not the Country that Counts

ROME: Talk of globalization, of a global economy, is unavoidable. But at the same time that the world witnessed the growth of this economy, it also saw incredible political fragmentation. In 1946 there were 76 independent nations, by 1996 there were 192. Of these, more than half had populations under 6 million; 58, less than 2 ˝ million; and 35, less than ˝ million.

Size does not seem to determine a country's success. Small countries – say, Singapore and Taiwan – have grown a lot, and large countries, too, have grown. Take Japan, despite its recent setbacks, and China in recent decades. There are small countries – Haiti, for example – as well as large – Nigeria – where the economies are basket cases.

So the size of countries does not seem to influence growth. Instead, its the size of the market that influences growth. In an autarkic economic system with international commerce reduced to the minimum, the political size of the country corresponds to the size of its market. In the global economy, the market is the rest of the world: the size of the market and the political size of each country are entirely independent. In today's global economy small countries can prosper quietly trading with the rest of the world: there does not exist any advantage in terms of the size of the domestic market.

With free international commerce, small regions have smaller costs in becoming independent. For this reason, ethnic, linguistic, and religious groups can find it more convenient to secede, if they do not have to bare the costs of finding themselves within an economy and a market that are too small. Clearly, the increase of the number of countries in Eastern Europe is due primarily to the fall of the Soviet Union. Many small countries in that part of the world, however, may not have been large enough to survive in a less integrated world economy.