THE CONSTRUCTION OF ECONOMIC RESILIENCE IN SMALL STATES

Abstract

While small states are very heterogeneous, several macroeconomic problems characterize them starting from a high level of public debt and week institutional capacities, poor fiscal balance, insufficient development of financial sector, to the imperfect banking market and a need for establishing adequate political and legal framework. There are two conventional ways for defining small states and those are the quantitative and qualitative approach. Nevertheless, we can say that there is no single definition of small state because the size is relative notion. Because of their small size, these countries cannot take advantage of economies of scale. Despite their heterogeneity and their differences, they share a number of common features and significant development challenges such as distance and isolation, vulnerability to natural disasters, economy openness, and the difficult access to foreign capital, poverty, high fixed costs in public and private sectors, high trade costs, relatively narrow and shallow financial sector and others. They are also characterized by a high degree of economic openness, export concentration and high dependence on strategic imports such as imports of food, fuel and industrial goods. These factors are in relation to their economic vulnerability, as well as to their weaker economic resilience compared...