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Small Benefit from Country Size

Author

Listed:
  • Kazuto Masuda

    (Bank of Japan)

Abstract

Furceri and Karras(2007, 2008) insisted that smaller countries are subject to more volatile business cycles than larger countries and country size really matters using international data from 1960 to 2000. They measure country size with population size. In this paper, we calculate welfare benefit from the less volatile busine! ss cycle, that is the positive effect of country size in Japan, US and OECD average. For calculating welfare benefit, we use “Welfare Cost of Business Cycle” approach following Obstfeld(1994), and we examine the welfare consequences of their conclusion. Our simple calculations shows that even if Fuerci and Karras(2007, 2008) is right, welfare benefit from country size is small, less than 1% in terms of consumption. Our conclusion suggests that, as long as focusing on only business cycle, population size is not important in terms of welfare,! contrary to Furceri and Karras(2007, 2008). However, for example, note that we neglect the effect of population size on growth rate of macroeconomy, though some studies recognize it. Therefore, our conclusion in this paper is only one suggestion about the welfare consequence of population size. Further researches about welfare consequence of population size (country size) are needed.

Suggested Citation

  • Kazuto Masuda, 2010. "Small Benefit from Country Size," Economics Bulletin, AccessEcon, vol. 30(1), pages 67-72.
  • Handle: RePEc:ebl:ecbull:eb-09-00545
    as

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    References listed on IDEAS

    as
    1. Rose, Andrew K., 2006. "Size really doesn't matter: In search of a national scale effect," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 482-507, December.
    2. Furceri, Davide & Karras, Georgios, 2007. "Country size and business cycle volatility: Scale really matters," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 424-434, December.
    3. Obstfeld, Maurice, 1994. "Evaluating risky consumption paths: The role of intertemporal substitutability," European Economic Review, Elsevier, vol. 38(7), pages 1471-1486, August.
    4. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-1151, December.
    5. Andrew K. Rose, 2006. "Size Really Doesn't Matter: In Search of a National Scale Effect," NBER Working Papers 12191, National Bureau of Economic Research, Inc.
    6. Davide Furceri & Georgios Karras, 2008. "Business cycle volatility and country zize :evidence for a sample of OECD countries," Economics Bulletin, AccessEcon, vol. 5(3), pages 1-7.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Population size; Welfare Cost of Business Cycle;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J1 - Labor and Demographic Economics - - Demographic Economics

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