Small States: Not Handicapped and Under-Aided, but Advantaged and Over-Aided

Abstract

Small states have long been viewed by international organizations as a special category with special handicaps requiring special assistance. The United Nations has created an Office of the High Representative for the Least Developed Countries, Landlocked Developing Countries, and Small Island Developing States. The very wording makes it clear that the UN regards small developing states that are landlocked or islands as being on par with the least developed countries. A very substantial academic literature has been devoted to small states, to which the World Bank and Commonwealth Secretariat have made contributions. They constituted a Joint Task Force that submitted a report in April 2000, Small States: Meeting Challenges' in the Global Economy, proposing an agenda for assisting such states in various ways, including increasing foreign aid (World Bank 9.000). This report was followed in 2005 by a review of progress on the 2000 agenda, Towards an Outward-Oriented Development Strategy for Small States (Briguglio, Persaud, and Stern 2005), henceforth referred to as the World Bank-Commonwealth review. This review also suggested increasing foreign aid. In 2006, the Independent Evaluation Group (IEG 2006) of the World Bank produced an evaluation of World Bank assistance to small states. During that same year, the World Bank also commissioned four regional studies of small states, which formed the basis of a subsequent book, Small States, Smart Solutions (Favaro 2008). Finally, in 2008, the World Bank released The Growth Report, also known as the Spence Commission report, which devoted a special section to small states (World Bank 2008). Economic theory suggests that small states may have intrinsic disadvantages (Easterly and Kraay 2000, Alesina and Spolaore 2003, World Bank 2008). The provision of public services may have indivisibilities that yield increasing returns to scale, so small states suffer from scale diseconomies. Returns to private investment may also have increasing returns to scale, which may be difficult to realize in small states. Small size may limit an economy's scope for diversification. Many small states are islands or landlocked, and face problems of remoteness. Small states produce only a few items and import file rest, and so are relatively open economies, and hence more exposed to trade shocks. They are disproportionately exposed to natural hazards like hurricanes. However, empirical studies do not, in general, find concrete evidence that smallness is a disadvantage. Among developing countries, small states actually have a higher GDP per capita than all states (IEG 2006, World Bank 2008). So, while small states may have some special disadvantages, they clearly have some special advantages too. This undercuts the rationale for viewing them as a special category requiring special assistance. To propose additional foreign aid in view of the disadvantages, while ignoring the advantages, does not make sense. Most recent studies define small states as those with a population of less than two million. (1) There are 50 such small states. The World Bank-Commonwealth review also covers Jamaica and Namibia, which have slightly over two million people each. Many studies exclude oil-rich countries like Brunei, Bahrain, and Kuwait, and small European states like Luxembourg and Lichtenstein. The list of small states covered in the World Bank-Commonwealth review is given in Table 1. Does Size Really Matter? Several studies (Easterly and Kraay 2000, World Bank 2008) show that small developing states have higher gross national income (GNI) per capita than large ones. (2) Indeed, differences among small states are more dramatic than average differences between small and large states. This suggests that size is not a key determinant of outcomes. The main issues are elaborated below. Small States Are Relatively Rich, Not Relatively Poor The World Bank-Commonwealth review shows that the mean GNI per capita of small states in 2005 was $5,180 (Table 1). …

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 18 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.