Article on the influence of country size on economic resilience published in the journal «International Economics and Economic Policy»

In small state economics, it is argued that small open economies are more volatile and more responsive to international shocks. However, small states also have a more flexible, faster and better capacity to adapt. In the article by Andreas Brunhart, published in the peer review journal «International Economics and Economic Policy», the following questions are statistically examined in an empirical case study on the Financial Crisis 2008/09 using a unique data set of 210 countries (states and independent territories) and over 40 variables: Did the vulnerability or adaptability of small states outweigh the vulnerability or adaptability of large states? Were smaller states actually affected more severely and perhaps even earlier? How strong/long was the global impact of the financial crisis shock? Which countries were particularly affected? Did country size play a role and which other pre-crisis determinants (geographical, economic, political, etc.) were relevant?

The cross-section regressions suggest that smaller country size was associated with higher vulnerability (ceteris paribus), which is reflected in a larger initial impact magnitude of the Financial Crisis shock. The smallness disadvantage began to unfold for countries with a population size of between 1 and 10 million, and was particularly severe for the very small states with considerably less than 1 million inhabitants. This result emphasizes that small state characteristics drive economic resilience and volatility beyond factors already identified in the literature. There is also significant evidence that the shock impact persistence was prolonged by smaller country size. Thus, the disadvantage of smallness in terms of higher exposure has dominated the advantages of small countries in terms of flexibility and adaptation speed. Moreover, smaller states were on average hit earlier.