This paper concentrates on the economic problems and prospects of small
states and their international policy implications. It touches also on the
inter-relationships between economic and security issues.
The size of states has important implications for their development
prospects. Large-scale production and organization provide great cost
advantages in most economic activities. Scale advantages can be had not
only in manufacturing, agriculture and services but also in marketing,
transportation, high-level training, administration, and research and
development.
Some of the constraints posed by small domestic markets and small
populations can be eased by outward-looking economic policies and
economic integration with neighboring states. In some sectors too, such as
agriculture, optimum sized production units are possible even if production
takes place mainly for the domestic market. And where there is population
pressure on land, intensity of production could compensate for small
acreage. In relation to mineral resources, the level of endowment in relation
to land area need not be less than in larger states. With the extension of the
Exclusive Economic Zone (EEZ) under the Law of the Sea Convention and
taking into account prospects for other favorable factors - climate, beaches
and marine resources - small island states need not be in a disadvantageous
position in resource endowment per capita relative to larger states, even
though their population densities tend to be higher.
Small states do not stand out as being in any unfavorable position among
developing countries in per capita income. However, even with relatively
high levels of per capita income, small states tend to remain weak in terms
of total economic size as well as bargaining power. Moreover, being
relatively open, they are particularly vulnerable to external shocks and
cyclical fluctuations in the world economy. Transformation to a more
diversified and stable economic structure is more difficult for small states and may be impossible for mini-states. Thus. even with relatively high per
capita incomes, small economies may continue to be characterized by
economic instability and vulnerability. For these states. therefore, per capita
income is not an adequate indicator of level of development.peer-reviewe
