Volltext: Very small countries: economic success against all odds

mal country size.42Note, for instance, that many of the VSC in the world and all of the prosperous ones are located in a relatively stable po- litical environment. Summarizing all arguments of this section and condensing them for the empirical examination in Section 3.2, we obtain three main theoreti- cal predictions from our 
discussion: Hypothesis 1:The evidence should show a negative relationship be - tween country size and government size in line with Alesina and Wacziarg (1998) even in the 
nineties.43 Hypothesis 2:The extent and significance of that relationship should have, nevertheless, declined substantially due to the deepening and widening of regional as well as global integration and a higher over- all degree of trade openness over the last three 
decades. Hypothesis 3:We should detect that the relationship of country size and public expenditure differs between groups of countries. Spe ci fi - cal ly, OECD members should only display an insignificant diffe - rence between larger countries and smaller ones with respect to their pub lic expenditure because of trade openness and more or less peace- ful adjacent countries. Geographically remote countries should show large differences with regard to relative government size, because they have fewer options to organize public good provision and, hence, the diseconomies of scale effect should be more 
severe. 3.2 Empirical evidence Table 3.1 arranges 120 countries for which data of government con- sumption44in 1995 or 1996 are available in a matrix, grouped by quin - tiles, computed for government consumption and population. If there is 45 
Empirical evidence 42Some of these factors are controlled for in the regressions in Section 3.2. 43The data base of Alesina and Wacziarg (1998) ends in 1989. Some of their results are even based on data for the first half of the 80ies. 44The arguments for the choice of government consumption as a proxy for govern- ment size are laid out in Section 3.2.1.


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