Small states, small problems? Income, growth, and volatility in small states

William Easterly, Aart Kraay

    Research output: Contribution to journalArticle

    Abstract

    Small states have attracted a large amount of research. In this paper we test whether small states are any different from other states in terms of their income, growth, and volatility outcomes. We find that, controlling for location, small states have higher per capita GDP than other states. This income advantage is largely due to a productivity advantage, constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale. Small states also do not have different per capita growth rates than other states. Small states do have greater volatility of annual growth rates, which is in part due to their greater volatility of terms of trade shocks. This terms of trade-based volatility is in turn due to small states' greater openness. Their greater openness on balance has, however, a positive net payoff for growth. The one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversity risk, but the benefits of even that are still unresolved in the literature. We conclude that small states are no different from large states, and so should receive the same policy advice that large states do. (C) Elsevier Science Ltd. All rights reserved.

    Original languageEnglish (US)
    Pages (from-to)2013-2027
    Number of pages15
    JournalWorld Development
    Volume28
    Issue number11
    DOIs
    StatePublished - 2000

    Fingerprint

    small state
    income
    terms of trade
    returns to scale
    capital market
    Gross Domestic Product
    international capital market
    productivity
    volatility
    Small states
    Income growth
    policy

    Keywords

    • Growth
    • Pacific Islands
    • Small states
    • The Caribbean
    • Trade
    • Volatility

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Development
    • Geography, Planning and Development
    • Sociology and Political Science

    Cite this

    Small states, small problems? Income, growth, and volatility in small states. / Easterly, William; Kraay, Aart.

    In: World Development, Vol. 28, No. 11, 2000, p. 2013-2027.

    Research output: Contribution to journalArticle

    Easterly, William ; Kraay, Aart. / Small states, small problems? Income, growth, and volatility in small states. In: World Development. 2000 ; Vol. 28, No. 11. pp. 2013-2027.
    @article{56a0cb169840455485549214956f0e76,
    title = "Small states, small problems? Income, growth, and volatility in small states",
    abstract = "Small states have attracted a large amount of research. In this paper we test whether small states are any different from other states in terms of their income, growth, and volatility outcomes. We find that, controlling for location, small states have higher per capita GDP than other states. This income advantage is largely due to a productivity advantage, constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale. Small states also do not have different per capita growth rates than other states. Small states do have greater volatility of annual growth rates, which is in part due to their greater volatility of terms of trade shocks. This terms of trade-based volatility is in turn due to small states' greater openness. Their greater openness on balance has, however, a positive net payoff for growth. The one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversity risk, but the benefits of even that are still unresolved in the literature. We conclude that small states are no different from large states, and so should receive the same policy advice that large states do. (C) Elsevier Science Ltd. All rights reserved.",
    keywords = "Growth, Pacific Islands, Small states, The Caribbean, Trade, Volatility",
    author = "William Easterly and Aart Kraay",
    year = "2000",
    doi = "10.1016/S0305-750X(00)00068-1",
    language = "English (US)",
    volume = "28",
    pages = "2013--2027",
    journal = "World Development",
    issn = "1873-5991",
    publisher = "Elsevier BV",
    number = "11",

    }

    TY - JOUR

    T1 - Small states, small problems? Income, growth, and volatility in small states

    AU - Easterly, William

    AU - Kraay, Aart

    PY - 2000

    Y1 - 2000

    N2 - Small states have attracted a large amount of research. In this paper we test whether small states are any different from other states in terms of their income, growth, and volatility outcomes. We find that, controlling for location, small states have higher per capita GDP than other states. This income advantage is largely due to a productivity advantage, constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale. Small states also do not have different per capita growth rates than other states. Small states do have greater volatility of annual growth rates, which is in part due to their greater volatility of terms of trade shocks. This terms of trade-based volatility is in turn due to small states' greater openness. Their greater openness on balance has, however, a positive net payoff for growth. The one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversity risk, but the benefits of even that are still unresolved in the literature. We conclude that small states are no different from large states, and so should receive the same policy advice that large states do. (C) Elsevier Science Ltd. All rights reserved.

    AB - Small states have attracted a large amount of research. In this paper we test whether small states are any different from other states in terms of their income, growth, and volatility outcomes. We find that, controlling for location, small states have higher per capita GDP than other states. This income advantage is largely due to a productivity advantage, constituting evidence against the idea that small states suffer from an inability to exploit increasing returns to scale. Small states also do not have different per capita growth rates than other states. Small states do have greater volatility of annual growth rates, which is in part due to their greater volatility of terms of trade shocks. This terms of trade-based volatility is in turn due to small states' greater openness. Their greater openness on balance has, however, a positive net payoff for growth. The one differential policy measure that might be relevant for small states is to further open up to international capital markets in order to better diversity risk, but the benefits of even that are still unresolved in the literature. We conclude that small states are no different from large states, and so should receive the same policy advice that large states do. (C) Elsevier Science Ltd. All rights reserved.

    KW - Growth

    KW - Pacific Islands

    KW - Small states

    KW - The Caribbean

    KW - Trade

    KW - Volatility

    UR - http://www.scopus.com/inward/record.url?scp=0033761747&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0033761747&partnerID=8YFLogxK

    U2 - 10.1016/S0305-750X(00)00068-1

    DO - 10.1016/S0305-750X(00)00068-1

    M3 - Article

    VL - 28

    SP - 2013

    EP - 2027

    JO - World Development

    JF - World Development

    SN - 1873-5991

    IS - 11

    ER -