The Wealth and Size of Nations

Abstract

This article provides a general theory explaining the geographic and population size and wealth of nations. Successful countries create conditions for high productivity in the economic sphere by enforcing property rights and providing social overhead capital and at the same time minimize political costs by creating a system of rules that reduce influence costs and allow for diverse preferences. Countries also need an effective military apparatus to protect their wealth from predation by other countries. Success in these endeavors may lead to immigration and geographical expansion, but an inability to meet these goals may lead to extensive emigration or breakup of the country. The argument is done within the context of a formal model that integrates spatial political costs with the benefits of spatially determined economic production and the effect of coercive transfers. The analysis is used to provide insight into secessions and mergers of nation-states.