Country size and the rule of law: Resuscitating Montesquieu

The political and economic impact of country size has been a frequently discussed issue in social science. In accordance with the general hypothesis of Montesquieu, this paper demonstrates that there is a robust negative relationship between the size of country territory and a measure of the rule of law for a large cross-section of countries. We propose that there are two main reasons for this regularity; firstly that institutional quality often has the character of a local public good that is imperfectly spread across space from the capital to the hinterland, and secondly that a large territory usually is accompanied by valuable rents that tend to distort property rights institutions. Our empirical analysis further shows that whether the capital is centrally or peripherally located within the country matters for the average level of rule of law.