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Small states, small problems?

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  • Easterly, William
  • Kraay, Aart

Abstract

Small states have attracted a good deal of research. The authors test whether micro-states are any different from other states in income, growth, and volatility. They find that, controlling for location, smaller states are actually richer than other states in per capita GDP. This income advantage largely reflects a productivity advantage--evidence against the idea that micro-states are unable to exploit increasing rates of return to scale. Small states do not have different per capita growth rates, with or without controls. Their annual growth rates are more volatile, partly because of their greater volatility in responses to terms-of-trade shocks--to which they are exposed because of their greater openness pays off positively in growth. The authors do recommend that small states diversify their risk by opening up more to international capital markets, although the benefits of doing so are still unresolved in the literature. In general, they conclude, small states are nor different from large states and should receive the same policy advice large states do.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2139.

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Date of creation: 30 Jun 1999
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Handle: RePEc:wbk:wbrwps:2139

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Related research

Keywords: Economic Theory&Research; Environmental Economics&Policies; Fiscal&Monetary Policy; Public Health Promotion; Economic Conditions and Volatility; Inequality; Achieving Shared Growth; Economic Theory&Research; Environmental Economics&Policies; Governance Indicators;

References

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  1. Streeten, Paul, 1993. "The special problems of small countries," World Development, Elsevier, Elsevier, vol. 21(2), pages 197-202, February.
  2. Garey Ramey & Valerie A. Ramey, 1994. "Cross-Country Evidence on the Link Between Volatility and Growth," NBER Working Papers 4959, National Bureau of Economic Research, Inc.
  3. Easterly, William & Rebelo, Sérgio, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 885, C.E.P.R. Discussion Papers.
  4. Armstrong, H. & De Kervenoael, R. J. & Li, X. & Read, R., 1998. "A comparison of the economic performance of different micro-states, and between micro-states and larger countries," World Development, Elsevier, Elsevier, vol. 26(4), pages 639-656, April.
  5. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
  6. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  7. Norman Loayza & Paul Cashin, 1995. "Paradise Lost? Growth, Convergence and Migration in the South Pacific," IMF Working Papers, International Monetary Fund 95/28, International Monetary Fund.
  8. Farrugia, Charles, 1993. "The special working environment of senior administrators in small states," World Development, Elsevier, Elsevier, vol. 21(2), pages 221-226, February.
  9. Alesina, Alberto & Spolaore, Enrico, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(4), pages 1027-56, November.
  10. Srinivasan, T N, 1986. "The Costs and Benefits of Being a Small, Remote, Island, Landlocked, or Ministate Economy," World Bank Research Observer, World Bank Group, World Bank Group, vol. 1(2), pages 205-18, July.
  11. Easterly, W & Levine, R, 1996. "Africa's Growth Tragedy : Policies and Ethnic Divisions," Papers, Harvard - Institute for International Development 536, Harvard - Institute for International Development.
  12. Briguglio, Lino, 1995. "Small island developing states and their economic vulnerabilities," World Development, Elsevier, Elsevier, vol. 23(9), pages 1615-1632, September.
  13. Milner, Chris & Westaway, Tony, 1993. "Country size and the medium-term growth process: Some cross-country evidence," World Development, Elsevier, Elsevier, vol. 21(2), pages 203-211, February.
  14. Lewis, Karen K, 1996. "What Can Explain the Apparent Lack of International Consumption Risk Sharing?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(2), pages 267-97, April.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Small does matter
    by Brian Ashcroft in Scottish Economy Watch on 2012-06-09 10:28:07
  2. Independence Fact No. 2
    by Brian Ashcroft in Scottish Economy Watch on 2013-11-20 10:19:37
  3. Independence Fact No. 3
    by Brian Ashcroft in Scottish Economy Watch on 2013-11-21 12:12:19
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Liou, F. M. & Ding, C. G., 2002. "Subgrouping Small States Based on Socioeconomic Characteristics," World Development, Elsevier, Elsevier, vol. 30(7), pages 1289-1306, July.
  2. Calderon, Cesar & Loayza, Norman & Serven, Luis, 2000. "External sustainability : a stock equilibrium perspective," Policy Research Working Paper Series 2281, The World Bank.
  3. Klinger, Bailey & Lederman, Daniel, 2010. "Export discoveries, diversification and barriers to entry," Policy Research Working Paper Series 5366, The World Bank.
  4. Calderon, Cesar & Loayza, Norman & Serven, Luis, 2003. "Do capital flows respond to risk and return?," Policy Research Working Paper Series 3059, The World Bank.
  5. Winters, L. Alan, 2000. "Trade, Trade Policy and Poverty: What Are The Links?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2382, C.E.P.R. Discussion Papers.
  6. Beine, Michel & Docquier, Frédéric & Schiff, Maurice, 2008. "Brain Drain and its Determinants: A Major Issue for Small States," IZA Discussion Papers 3398, Institute for the Study of Labor (IZA).
  7. Teuea Toatu, 2002. "Unravelling the Pacific Paradox," International and Development Economics Working Papers, International and Development Economics idec02-2, International and Development Economics.
  8. Siroën, Jean-Marc, 2001. "Gouvernance, biens publics et globalisation," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/6068, Paris Dauphine University.
  9. Jacinto Brito González, 2004. "Conocimiento, geografía e instituciones: Una aproximación a la problemática del crecimiento en el archipiélago canario," Documentos de trabajo conjunto ULL-ULPGC, Facultad de Ciencias Económicas de la ULPGC 2004-03, Facultad de Ciencias Económicas de la ULPGC.
  10. Montalbano, Pierluigi & Federici, Alessandro & Triulzi, Umberto & Pietrobelli, Carlo, 2005. "Trade Openness and Vulnerability in Central and Eastern Europe," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) RP2005/43, World Institute for Development Economic Research (UNU-WIDER).

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