NCPA - National Center for Policy Analysis

Liberalized Trade Allows Small Countries to Thrive

March 16, 2001

Global trade has exploded in the last half-century. At the same time, many new nations have been created. While the proliferation of new nations might be traced to the demise of colonialism in a number of instances, three economists detect a link to greater world trade.

In a study in the American Economic Review, Harvard University's Alberto Alesina, Enrico Spolaore of Brown University and Romain Wacziarg of Stanford University make these observations, among others:

  • Nations with large linguistic and cultural minorities face heavy costs spawned by infighting over resources.
  • When trade barriers are high, these costs are outweighed by the benefits of maintaining large internal markets and greater resource ability.
  • But when trade between nations is open, it becomes increasingly possible for small, ethnically compact nations to thrive via access to external markets and suppliers.
  • So as tariff rates slowly rose between 1870 and the 1920s, the number of nations remained stable or decreased.

But following World War II, trade barriers began falling dramatically. The result was an explosion in the number of nations -- from 74 in 1946 to 192 in 1995.

Today, over half of all nations have fewer people than the commonwealth of Massachusetts.

Source: Gene Koretz, " More Trade, More Nations," Economic Trends, Business Week, March 19, 2001; Alberto Alesina, Enrico Spolaore and Romain Wacziarg, "Economic Integration and Political Disintegration," American Economic Review, December 2000.


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