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Right, it's the second: Lower numbers are taller gears.
If the performance would be sluggish with the larger tires, it would be nearly as sluggish with a taller final drive (ring and pinion).
I don't know if the later Civics used D-series engines or not. (Some of the Si models used B-series engines/transmissions.) You can swap gears among the D-series transmissions, but not with B- or K-series ones.
The CRX HF also had a taller ring and pinion set, so together with the taller individual gears you had very tall overall gearing indeed. It may be possible to swap the R&P over, but I'm not sure. That will effectively make all of the gears taller. But I don't know the exact specs of either the one you have now or the HF one...
-soD
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