International Conflict, Defense Spending and the Size of Countries
This paper provides a formal model of endogenous country formation and of choice of defense spending in a world with international conflict. The model is consistent with three observations. First, secessions and, more generally, break-up of countries should follow a reduction in the likelihood of international conflict. Second, the number of regional conflicts between smaller countries may increase as a result of the break-up of larger countries. Third, the size of the peace divided -- i.e., the reduction in the defense spending in a more peaceful world -- is limited by the process of country break-up.
Alesina, Ablerto and Enrico Spolaore. "Conflict, Defense Spending, And The Number Of Nations," European Economic Review, 2006, v50(1,Jan), 91-120.