Okay, I made noise early in this discussion and it's really gone in a few directions. Time for me to add another bit (of sound logic) to this discussion again.
If we recognize that there is a competitive imbalance between divisions in the same the country, and that the imbalance is largely due to income differences (profit margins are bigger in higher divisions), then having small countries with only high divisions (i.e. nothing lower than D.II, or maybe D.III) makes the gap between divisions in countries with more teams larger. here's how:
If all D.I teams average a net profit of, say, $160k per week, and D.II teams average, say, $110k per week, and lower divisions are $75k per week or lower, then every week in a season the gap in bank accounts of teams in each division widens. Now when teams go to spend on players on the TL, the teams making more money will drive up the market. That's fine for the teams in the higher divisions since from country to country, the net profit is relatively the same (yeah, countries with more teams may make a tad more due to TV and merchandise, but this is somewhat offset by the typically slightly lower salaries of teams in countries with fewer teams). However, if there is a high percentage of teams at the D.I level all making the same incomes, which happens with so many counties with only a handful of teams, then any team in D.III or lower has that much of a harder time tying to buy players to be competitive enough to possibly compete in a higher division one day.
Don't ask what sort of Chunks they are, you probably don't want to know. Blowing Chunks since Season 4!