There are two things to think about in ansawering this question. First, the origins of the Buddha image. Second, what the Buddha image is for.

For some time there has been argument in the scholarly community as to whether there was an aniconic period in Buddhism, i.e. a period in which imagery of the Buddha was banned. Some scholars of the past have argued that Buddha imagery only arose after contact with Western culture and prior to this the Buddha was represented only through symbols such as dhammacakka (the wheel of the dharma). However, this aniconic thesis has been disputed in more recent times by Huntington who says that this claim is mostly based on misinterpretations of textual and archeological evidence. I think he makes a very persuasive argument. If there was an aniconic period it was probably very short lived and Buddha imagery arose shortly after the Buddha's death (or parinibbana in the Pali language, since in Buddhist doctrine the Buddha did not 'die' in our normal meaning). So Buddha images arose quite early on in the history of Buddhism and they served a very particular religious purpose which is the next matter.

There are a number of uses for Buddha images. Richard Gombrich notes that a Buddha image serves as a "reminder" of the reality and historical presence of the Buddha. It encourages the observer to remember the virtues and excellences of the Buddha and inspires people to try and emulate his behaviours.

Second, observing a Buddha image can be considered in itself an auspicious and meritorious act because it conjures up pure thoughts. This is called Buddhadarsana, or "observing the Buddha's presence." In regards to "darsan" there is a heavy cross-pollination between Orthodox Indian religious traditions (Hinduism) and Buddhism here. In Hinduism, darsan occurs when one stands in the presence of an icon because the real deity is understood to inhabit the physical space of the image. This causes the observer to fall into a state of religious revelry (bhakti, i.e. devotion). The difference in Buddhism is that the Buddha does not actually inhabit the image. Rather, the darsan concerns observing the Buddha's presence represented by the Dharma which is the teaching left behind. After all, the Buddha is no longer part of cyclic existence so cannot actually be in the statue. This is a big doctrinal difference between Buddhism and Hinduism.

A third aspect of the use of the Buddha image is as an act of almsgiving. Giving (dana) is a basic virtue in Buddhism and in particular one can accrue great merit by donating Buddha images. These images are often installed in temples, but may also be built in locations separate from a temple. Sometimes a large statue will be constructed first and a temple installed at a later time such as in the case of the Avukana Statue in Sri Lanka.

These preliminary matters are helpful in answering the question. 1. The size of the statue is relevant in the effect it has as a reminder of Buddhism. If the statue can be observed from far away it will have a greater effect in reminding people about the power and grace of Buddhism and the presence of the Buddha Dharma; and 2, as a general principle in Buddhism, the greater the gift the greater the merit. So if a person - be they monastic or lay - sets out to build a huge icon of Buddhism this will lead to the accrual of a large amount of merit (karma) compared to a small icon. The idea is that the motive must be very pure, the sense of devotion very powerful, for a person to sacrifice so much wealth in service to Buddhism. This in fact can lead to a kind of merit arms race. Take for example the scene in ancient Anuradhapura, Sri Lanka, where kings would try and outdo each other by constructing increasingly more massive cetiya (domed monuments representing the Dharma). The same principle applies in the case of the Buddha statues - the bigger the better, because the more karma and prestige involved. You cannot underestimate the importance of prestige in these construction projects. But the underlying principles are doctrinal and religious.

Refs: Linroth, Rob (1993). Inquiries into the Origin of the Buddha Image: A Review, in East and West (vol 43). Gombrich, Richard (2000). Theravada Buddhism: A Social History, Oxford Uni Press.