Smallness of the Economy as a (Dis)advantage: The Evidence from Selected Interdependent Macroeconomic Data

  • Petar Kurecic, Goran Luburic, Goran Kozina
  • January 2017, Pluto Journals
  • DOI: 10.13169/worlrevipoliecon.8.3.0416

Smallness of the Economy as a (Dis)advantage

What is it about?

Small economies are usually classified by the size of their GDP. Among the small states, which can be determined by various criteria, there are many small economies. Smallness of the economy influences the vulnerability of the state, and if it is connected with the other potentially negative factors (land-locked or island position) or reliance on a few export products, it can create vulnerable economies. Concurrently, smallness of the economy can be an advantage, since it provides better conditions for faster economic growth and makes transformations of the economy easier.

Why is it important?

This article brings a quantitative comparative study of the small economies, classified by the size of their total GDP. Sets of macroeconomic data (foreign direct investment [FDI] net inflows in current US$ and GDP in current US$; external debt and GDP) were studied, for which the correlation between the FDI and GDP was calculated (for 40 smallest economies), as was the regression analysis between the FDI net inflows (independent variable) and the gross fixed capital formation (GFCF), as well as between the FDI net inflows and the growth of external debt for the 10 smallest economies between 1981 and 2014. The results were used to describe if there is a significant connection between FDI and external debt and if it can be mathematically modeled.


Professor Petar Kurecic
University of the North Croatia

Small states, especially the island ones, face many challenges that large states are not faced with. However, that does not mean the small states are determined to be poor and vulnerable simply because of their smallness. A number of different factors were pointed out here, which can make small states more resilient. Some of these factors derive particularly from smallness, such as social cohesion and the ability to make necessary changes in shorter period.

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The following have contributed to this page: Professor Petar Kurecic