Economic integration and political disintegration

In a world of trade restrictions, large countries enjoy economic benefits, because political boundaries determine the size of the market. Under free t rade and global markets even relatively small cultural, linguistic or ethni c groups can benefit from forming small, homogeneous political jurisdiction s. This paper provides a formal model of the relationship between openness and the equilibrium number and size of countries, and successfully tests tw o implications of the model. Firstly, the economic benefits of country size are mediated by the degree of openness to trade. Secondly, the history of nation-state creations and secessions is influenced by the trade regime.