Contents

Abstract 1500

1. Introduction 1501

2. Size, openness and growth: Theory 1502

2.1. The costs and benefits of size 1502

2.1.1. Thebenefitsofsize 1503

2.1.2. The costs of size 1505

2.2.

2.2.1. Productionandtrade 1506

2.2.2. Capitalaccumulationandgrowth 1508

2.3. The equilibrium size of countries 1510

2.4. Summingup 1513

3. Size, openness and growth: Empirical evidence 1514

3.1. Trade and growth: a review of the evidence 1514

3.2. Country size and growth: a review of the evidence 1516

3.3. Summing up 1518

3.4. Trade, size and growth in a cross-section of countries 1518

3.4.1. Descriptivestatistics 1519

3.4.2. Growth, openness and size: panel regressions 1522

Handbook of Economic Growth, Volume 1B. Edited by Philippe Aghion and StevenN. Durlauf © 2005ElsevierB.V All rights reserved

DOI: 10.1016∕S1574-0684(05)01023-3

3.5. Endogeneity of openness: 3SLS estimates 1525

3.5.1. Magnitudesandsummary 1527

4. Country size and trade in history 1530

4.1. The city-states 1530

4.2. Theabsolutistperiod 1531

4.3. The birth of the modern nation-state 1531

4.4. The colonial empires 1532

4.5. Borders in the interwar period 1533

4.6. Borders in the post-Second World War period 1534

4.7. TheEuropeanUnion 1536

5. Conclusion 1538

Acknowledgements 1539

References 1539