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International Conference on Small States and Economic Resilience Valletta, Malta: 23 - 25 April 2007 MARKET ADJUSTMENT AND MARKET FAILURE IN SMALL STATES: IMPLICATIONS FOR RESILIENCE BUILDING Gordon Cordina ABSTRACT Please click here to view full paper Economic resilience is the ability of an economy to withstand and rebound from the effects of adverse shocks. This is dependent upon the efficiency with which resources are allocated and can be reallocated following changes in exogenous conditions. Markets are a key factor in the allocation of resources, be they capital, labour, goods and services. The paper will argue that that the extent to which markets operate efficiently is an important determinant of economic resilience. On the other hand, it is to be considered that instances of market failure are more common in small economies. The paper therefore argues that small economies have a greater need for policy measures aimed at generating market responses to external shocks. Towards this end, the paper proposes a number of policy measures aimed at promoting market efficiency, and, in cases of market failure, at devising appropriate instruments and mechanisms conducive towards rendering the economy more responsive to external shocks, thereby building resilience. . 1