This paper shows that country size is negatively related to government size, and
that it is also negatively related to trade openness. These observations are
consistent with recent economic models of country formation. Such theories
(Alesina and Spolaore (1997); Alesina et al. (1997)) view the determination of
country size as arising from a trade-off: large countries can afford to have smaller
governments (and therefore lower taxes) and they already benefit from a sizable
market which reduces their need to be open to trade. However, they must bear the
cost of cultural heterogeneity.