Business Intelligence

Country Size, Growth And Volatility

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Executive Summary

What are the effects of country size on growth and business cycle volatility? To investigate this question, previously asked by Rose (2006) and Furceri and Karras (2007), the authors developed an original country-size index with principal component analysis (PCA). Traditional analysis of this topic usually only includes the population. The methodology enables one to simultaneously consider the countries' population, GDP and arable land. The inclusion of these additional variables allows one to analyses different components of country size and to control for more than a merely demographic effect. Using a panel data set of 163 countries for 1960 - 2007, they find, contrary to Rose (2006), that country size has a significant and negative impact on economic performance.

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