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Scale Economy or Scale Entropy? Country Size and Rate of Economic Growth, 1950-1977

Glenn Firebaugh
American Sociological Review
Vol. 48, No. 2 (Apr., 1983), pp. 257-269
Stable URL: http://www.jstor.org/stable/2095110
Page Count: 13
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Scale Economy or Scale Entropy? Country Size and Rate of Economic Growth, 1950-1977
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Abstract

Conventional arguments about scale effects suggest the possibility of scale economies for nations: larger national markets permit greater labor specialization, resulting in greater productivity per unit. But there are other possibilities. Some Marxist writers describe "contradictions" in advanced capitalist nations which make their continued economic growth problematic. Recent "limits-to-growth" writers imply likewise that nations may be subject to diminishing returns to scale as large economies increasingly confront resource constraints ("scale entropy"). This analysis uses data for 105 nations to assess the effects of country size on economic growth rate, 1950-1977. Contrary to conventional arguments, domestic market size has no independent effect on rate of economic growth. However, when market size is decomposed so that the effects of population size and per capita income are separated, an interesting pattern emerges: population has a modest positive effect on growth rate, while per capita income has a substantial negative effect. Consistent with the scale entropy view, the negative income effect suggests that affluence may entail costs which slow economic growth.

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