Small Benefit from Country Size

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.