Volltext: Very small countries: economic success against all odds

However, public goods can be regarded in a similar vein, and we fo- cus on this proposition in the following chapters. Why should the con- cepts of division of labor and specialization be restricted to private goods? When a country has open borders, it can gain from public goods which are provided by other countries, because its citizens cannot be excluded from the consumption of the public good. Sometimes small countries can act like free riders, as many European members of NATO did and still do. They have been enjoying highest possible external secu- rity, but did not contribute the same relative resources as the U.S.A. Take, for instance, Austria as another example. It «imports» many of its laws from Germany and only modifies them slightly, and it has fully ad- opted German monetary policies for the Austrian National Bank since the mid 70ies. Additionally, citizens of one country can often use the in- frastructure of adjacent countries. Although these facilities cannot be consumed for free, only one government or public agency bears the costs of building and operation. Think of Munich Airport from which many Austrians living in the western part of the country depart for their long-distance flights, the opera house in Salzburg visited by many Bavarians or big hospitals near a country’s border. All these publicly provided goods have to be sufficiently near the border – with the exception of public services, information and global public goods, which have all been gradually gaining more importance in recent years – to offer the opportunity of consumption to foreigners. Consuming publicly provided goods of foreign countries for free or by paying a price near the marginal costs of operation only (which is in ge- neral much less than average costs for production and operation) seems to be common in landlocked VSC due to small distances to the country border from any place within the VSC (under the assumption that its area as well as its number of inhabitants is 
small). 3.2.1 Proxies for government size and country size We choose government consumption as a proxy for government size in the regressions, even though there are some other aggregates which would also be of interest, like public expenditure or public investment. The trivial reason for our choice is the lack of comparable data for other aggregates, again especially for smaller countries. The data problem ex- 47 
Empirical evidence


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