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Going down by deception
Micro-states are not worse off
• Are no poorer than other countries
• Grow no less
• Even not when OECD and oil countries
are excluded
• Invest more, better at technology, better
educated, healthier and well organized
Differences between microstates
• 6 out of the 10 richest countries are microstates (less than 1 million)
• 9 out of the richest 20 countries are microstates (Ísland nr 10 og Føroyar nr 20)
• 37 micro-states are among the richer half
and 16 to the poorer half of the countries
in the world
• 72 out of 222 countries are micro-states
(UNCTAD 2004)
Volatile micro-economies
• The economies are suffering more from
external shocks
• Size matters
– Few comodities (economy of scope)
– Small markets (economy of scale)
– Natural disaster areas
– . . . Weak government
Export transmission of shocks
• This is the Achilles
heel of the microstates - changing
natural conditions and
changing foreign
2006
demand
Of commodity export
• At the same time the Of export total
Of labour market
export sector
Of GDP
accounts for large
part of the economy
Føroyar Ísland
94%
52%
74%
34%
17%
7%
18%
7%
Export concentration - volatility
Export concentration Standard deviation of
• The
fewer(log of) Current account balance
you
Jemen commodities
0,876
10,01
Samoa
0,694
6,71
export
the
more
Føroyar
0,661
7,56
Malavi volatile 0,465
is the foreign 7,12
Noreg
0,444
1,72
(Current
Paragvei income0,380
0,80
Ísland
0,379
3,71
account)
Maleisia
0,194
1,42
Country
Italia
0,053
1,53
0,84
1,77
10,92
0,64
1,18
St.dev. current account balance (var. years)
0,188
•
The
correlation
Kanada
0,128
Svøríki
seems0,118clear and
Kekkia
0,088
close 0,087
Danmark
Finnland
12
Kekkia
10
8
6
4
2
0
0
0,5
Export concentration
1
Faroese cycles
• Export declines
• GDP is affected
• Population growth is
affected
– The first incidence
was due to political
failure
– The latter was one of
the recurrent cycles
Farrugia and the §19 commission
•
•
•
•
•
Incompetent politicians
Inadequate legal framework
Weak government
Weak administration
High degree of collaboration between
special interest groups and politicians
• Everybody knew everything – and nobody
was accused or punished
Bygdin
Subsidies and bad investment
20%
6%
15%
4%
10%
2%
5%
0%
0%
Subsidies
Investment
20
04
8%
20
02
25%
20
00
10%
19
98
30%
19
96
12%
19
94
35%
19
92
14%
19
90
40%
19
88
16%
19
86
45%
19
84
18%
19
82
50%
19
80
20%
Fishing vessels
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
Skipafloti
290
270
250
230
210
190
170
150
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
Ymiskar leiðir
180
160
140
120
100
80
60
BTÚ Føroyar
BTÚ Ísland
Almost insurmountable – but not
200%
200%
150%
150%
100%
100%
50%
50%
0%
0%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
-50%
-50%
-100%
-100%
Public
Private
Foreign debt
Draining the economy
30%
10% in
15 years
20%
10%
0%
-10%
-20%
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
-30%
10% in
10 years
Nettorenta í prosent av BTÚ
Gjaldsjavnaúrslit í prosent av BTÚ
Currency board with DKK
• The DKK did not depreciate
– No effect from depreciation to attract workers
and capital to the export industry
– No effect from depreciation to reduce imports
through price increases
• Nominal wages gave some (10-20 pct.)
• Unemployment and emigration
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
Real incomes not regained
150
140
130
120
110
100
90
80
70
60
50
Fisheries
Construction
Shattered homes
1.200.000
450
400
1.000.000
350
800.000
300
250
600.000
200
400.000
150
100
200.000
50
Handilsprísur
Nýbygging
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
0
19
87
19
85
0
Unemployment and migration
4%
0%
2%
-1%
0%
-2%
Unemployed
Net migration
20
07
1%
20
06
6%
20
05
2%
20
04
8%
20
03
3%
20
02
10%
20
01
4%
20
00
12%
19
99
5%
19
98
14%
19
97
6%
19
96
16%
19
95
7%
19
94
18%
19
93
8%
19
92
20%
Wellfare-gap widens
350.000
70%
300.000
60%
250.000
50%
200.000
40%
150.000
30%
100.000
20%
50.000
10%
0%
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0
Wellfare gap
GNI capita DK
GNI capita FO
The catastrophe
60.000
55.000
50.000
45.000
40.000
35.000
1970
1975
1980
1985
Actual
1990
1995
Scenario1
2000
2005
Ageing population
70%
65%
60%
55%
50%
45%
40%
35%
00-39 ár
40+ ár
20
07
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
30%
Repercussions into the future
9%
6.800
8%
6.600
Konur 20-39
Børn 0-9 ár
20
07
7.000
20
05
10%
20
03
7.200
20
01
11%
19
99
7.400
19
97
12%
19
95
7.600
19
93
13%
19
91
7.800
19
89
14%
19
87
8.000
19
85
15%