Download Size and Growth

Size and
Growth:
Thorvaldur Gylfason
Big countries and small
To paraphrase Ernest Hemingway:
 Small countries are different from
big ones in that …
 … they have fewer people
 Do small countries differ also in
other respects? If so, how?
 What are the benefits and costs of
being small?
 What are the challenges for future?
Blessing or curse?
 Controversial issue
 “Our shortage of people is our most
serious social evil,” said our national
poet, Einar Benediktsson
 Consider arguments and evidence
Being small: Benefits
 Homogeneous population
 Social cohesion is good for growth
 Openness to trade and investment
 Being small and closed is not an option
 Small agriculture and natural
resource base
 Too much agriculture impedes growth
 Everyone knows practically
everything about everybody else
Being small: Costs
 Economies of scale and scope
 Public sector, defense
 Private sector
 Lack of diversification
 Vulnerable to external shocks
 Poor location
 Remote, landlocked
 High transport costs
 Few like Mozart, and far between
Empirical evidence:
Sample of countries
 There are now 207 countries in all
reporting to World Bank, and Taiwan
 Of these, 61 have fewer than 1.3
million inhabitants …
 … and 18 have fewer than 100,000
 So, there are 43 countries with
population between 0.1 million and
1.3 million
 Of which, 26 are islands: Our sample
Sample of 26 small
island economies I
Bahamas
Bahrain
Barbados
Cape Verde
Channel Islands
Comoros
Cyprus
Fiji
French Polynesia
Guam
Population1
298
666
267
428
149
544
761
801
231
152
GNP per capita2
15,500
11,600*
14,000
4,500
1,400
19,100
4,800
22,200
Figures refer to 1999. GNP is adjusted for purchasing power parity.
Sample of 26 small
island economies II
Population
Iceland
278
Maldives
269
Malta
379
Mauritius
1,174
Mayotte
140
Micronesia
116
Netherlands Antilles
215
New Caledonia
209
Samoa
169
Sao Tome & Principe
145
GNP per capita
27,200
3,400*
22,900
9,000
21,100
4,100
1,300
Figures refer to 1999. GNP is adjusted for purchasing power parity.
Sample of 26 small
island economies III
Population
Solomon Islands
429
St. Lucia
154
St. Vincent & Grenadines 114
Trinidad & Tobago
1,293
Vanuatu
193
Virgin Islands (U.S.)
120
GNP per capita
2,100
5,200
5,000
7,700
2,900
Average for all 26
373
9,600
Average for world
28,740
6,900
Figures refer to 1999. GNP is adjusted for purchasing power parity.
Empirical evidence:
Research strategy
 Compare small island economies with
world economy at large
 Stress variables that have proved to
be strong and robust determinants of
economic growth across countries




Openness to trade and investment
Education and health
Manufacturing vs. natural resources
Investment
Exports and FDI
1960-99 (% of GDP)
45
Small states
40
World
35
30
25
20
15
10
5
0
Exports
FDI (net) 1970-99
Duties and reserves
1960-99 (% of imports)
16
Small states
World
14
12
10
8
6
4
2
0
Import duties
Reserves (months)
Education 1960-99 (%)
60
Small states
World
50
40
30
20
10
0
Secondary
enrolment
Public
spending/GNP
Health 1990-99 (%)
80
Small states
World
70
60
50
40
30
20
10
0
Life expectancy
1999 (years)
Health
spending/GDP
Government spending
1960-99 (% of GDP)
25
Small states
World
20
15
10
5
0
Government
spending
Military spending
1985-97
Manufacturing exports
1963-99 (% of exports)
70
Small states
World
60
50
40
30
20
10
0
Manufacturing
export share
High-tech export
share 1988-99
Agriculture and personal
computers 1960-99
120
100
Small states
World
80
60
40
20
0
Agriculture (% of Computers per
GDP)
1000 inhabitants*
Investment and growth
1960-99 (%)
30
25
Small states
World
20
15
10
5
0
2.1% 2.0%
Investment/GDP Growth per capita*
Investment and growth
1960-99 (%)
30
25
Small states
World
20
15
10
5
0
2.1% 2.0%
Investment/GDP Growth per capita*
Empirical evidence:
Conclusion
 Small countries seem remarkably
similar to larger ones





More
More
More
More
More
open to trade, yes
public expenditure on education
– and better? – investment
government spending
dependent on natural resources
 In sum, their growth performance
has been similar as elsewhere
Empirical evidence:
Conclusion
 This is good news
 Many have expressed concern that small
is more dangerous than beautiful
 The key to further economic success is
greater openness to trade and also
investment to break outside the
confines of small domestic markets
 Small countries must have market access
 Can buy insurance against trade risks
 Must share gains from trade fairly