Ever wondered why there are so many countries in the world? My AFR op-ed today attempts to provide an answer. Full text over the fold.

Breaking Up is Easy to Do, Australian Financial Review, 2 February 2010

Why are there so many countries in the world? At the end of World War II, there were 74 nations. Today, the United Nations has 192 members. Proliferating nations are more than an academic curio. As trade ministers and environment ministers know, one of the reasons it is so difficult to strike an international deal these days is because it requires the agreement of a couple of hundred representatives.

In The Size of Nations, Alberto Alesina (Harvard) and Enrico Spolaore (Tufts) present a theory of country size that is as simple as it is powerful. In determining how big countries should be (and therefore how many countries there are in the world), they argue that there are two opposing forces. For economic reasons, nations should be big. For political reasons, countries should be small.

Economics favours large nations because it means more of us share the costs of running the central bank, paying for embassies, and maintaining an air force. And because commerce is easier within borders than across them, businesses are more likely to prosper in a big nation than a small one.

But politics drives towards smaller nations because large nations are hard to control. Smaller nations are more homogenous on several dimensions. Incomes tend to be more equally distributed, there is less ethnic and racial tension, and people are more likely to share a common language and religion. It’s a lot easier to find common ground when you’re the President of Costa Rica than if you happen to be President of the United States.

Sure, you say, but why are countries these days breaking up quicker than a Hollywood marriage?

The answer is that the two great forces of the post-war era – globalisation and democratisation – both favour smaller nations. Globalisation does it by making secession more attractive. In 1950, when average tariffs were around 40 percent, regions paid a large price for going it alone. Now that the average tariff is around 5 percent, breaking up is easier to do.

Democratisation raises the pressure to split off because it gives voice to regional interests. Among their many talents, dictators specialise in repressing separatist voices. From the Roman Empire to the Soviet Union, authoritarian regimes have forcibly imposed national symbols and languages. When regimes democratise, it can prove impossible to hold together a large and diverse country. It is no coincidence that East Timor’s independence quickly followed Indonesia’s democratisation. When China finally democratises, it is almost certain that outlying provinces will split away.

From Greenland to Georgia, Scotland to Somalia, the dominant pressure in the world is towards more nations, not less. Mergers (such as German reunification in 1990), are the exception that proves the rule. It’s a fair bet that the UN will have more than 200 members before long.

For policymakers, Alesina and Spolaore’s book has three major implications.

First, it challenges the old theory that Africa’s biggest problem is that the continent has too many countries. While mergers would have economic advantages (particularly given the substantial trade barriers that prevail), they would also have political costs. Africa’s ethnic, racial and religious diversity means that mergers could well end up creating new countries as ungovernable as Sudan and the Democratic Republic of the Congo are today.

Second, it suggests that the tectonic forces of geopolitics are moving against an Australia-New Zealand merger. The easier our Kiwi friends find it to trade with the world, the less likely they are to become the seventh state. And speaking of states, if you thought that Australian separatist movements were dead, you may be in for a rude shock. Western Australian secession would be costly for them, but the price keeps falling.

Third, we have to rethink the way that international organisations operate. Would the post-war negotiators have thought their new institutions would be viable in a world with nearly three times as many countries? Consensus may be a fine way to choose a family holiday, but when it comes to a trade deal, perhaps it’s time to start voting. (Ironically, getting the World Trade Organisation back on track will reduce global trade barriers, in turn fuelling secessionist fires.)

So get used to hearing the phrases ‘separatist movement’ and ‘autonomous region’ plenty more times. Unless we press the pause button on globalisation and democratisation, splintering nations are set to be the way of the future. But perhaps parents could stop chastising the younger generation for not knowing their maps. Honest, mum – geography really is harder than when you studied it.

Andrew Leigh is an economist in the Research School of Economics at the Australian National University.

By the way, apologies to anyone who has strong views on the distinction between ‘nation’ and ‘country’. If only there were more synonyms…