How big is an economy?

I mean big in the sense of what geographic scope does an economy cover. This question is prompted by Acemoglu and Robinson’s [amazon_link id=”1846684293″ target=”_blank” ]Why Nations Fail[/amazon_link]. Their thesis in a nutshell (as far as I’ve got with the book) is that economies that develop successfully need to have inclusive economic institutions combined with a centralized polity in order to enforce the law. Presumably economies of scale and scope apply as well. But I haven’t yet found their answer to the question, centralized over what territory? Italian and German unification were presumably helpful to the industrial development of those economies from the late 19th century. But turning to Paul Seabright’s [amazon_link id=”0691146462″ target=”_blank” ]The Company of Strangers[/amazon_link], he argues that the viable size of the state/economy has risen over time. Jane Jacobs argued in [amazon_link id=”0394729110″ target=”_blank” ]Cities and the Wealth of Nations[/amazon_link] that the large city in its hinterland is the natural economic unit. My instinct is that the UK economy is too centralized around London, certainly more so than comparable countries – see William Nordhaus’s economic geography globe. But the analysis of the optimal size for the economy – I’ve not found that yet.

[amazon_image id=”0691146462″ link=”true” target=”_blank” size=”medium” ]The Company of Strangers: A Natural History of Economic Life (Revised Edition)[/amazon_image]

2 thoughts on “How big is an economy?

  1. Hi Diane,

    There is a book that I really liked, called “The Long Divergence: How Islamic Law Held Back the Middle East ” by Timur Kuran where he’s trying to find out why The Islamic World failed to develop at the same rate and time as Europe did.
    It’s a fascinating book and, according to the author, one of the reasons of ‘failure’ of the Islamic World might be the absence of competition between different institutions. The Ottoman Empire was extractive and centralized while Europe developed around cities that competed and innovated in institutions and rules, and even to attract rejected people like Geneva with the Calvinists and Amsterdam with the Jews.


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