Economic self-reliance and small island developing states

Abstract

The objective of this study is to test the hypothesis that small country size does not inhibit economic self-reliance. To test this hypothesis, all developing states with available statistical data were taken into consideration, and were grouped into six country-size categories. Small states were defined as those with a population of less than 5 million, while very small states with a population of less than 1.5 million. A subset of very small states, namely Barbados, Cyprus, Fiji, Malta, and Mauritius, called “reference group”, were singled out for special consideration. Since the focus of this thesis is on small states, a whole chapter is dedicated to a comparison of small states in relation to other developing countries. Three areas were considered, namely economic structure, economic performance and economic stability. Another chapter discussed the meaning of self-reliance and showed that it is subject to different interpretations. It was argued that the traditional meaning of the term is related to self-sufficiency with autarkic implications. An alternative approach to the definition was proposed. It is based on the ability of small states to produce and sell goods and services, thereby generating income to satisfy domestic needs. In other words, this definition implies a condition of non-dependence on foreign financial handouts. To test the overall hypothesis of the thesis, a composite index was constructed; sub-indices, representing factors deemed to be contributory factors to self- reliance, were chosen, namely, external debt, human resources development, foreign aid, resource balance and current account of the Balance of Payments, all appropriately adjusted to allow for across countries comparisons. It was found that there was no significant correlation between the composite index of self-reliance and country size, suggesting amongst other things, that small states are not, as a group, less self-reliant than larger countries. Correlation analysis between the composite index and GDP per capita indicated a strong association between these two variables, implying that self- reliance is related to economic development. The correlation between the composite index and a number of economic variables, deemed to be manifestations of self-reliance, was also tested. It was found that self-reliance was highly related to economic growth, geographical location and peripherality. Interestingly, though self-reliance and country size were not found to be significantly correlated, it resulted that a number of small states scored highly on the composite index, covering ninety six developing countries. Ten of the top twenty places were occupied by states with a population of less than five million people, five of which were “the reference group”. Several policy implications were drawn from the conceptual framework and correlation results. Firstly, it was argued that self-reliance does not necessarily mean self-sufficiency but the ability to generate income from economic activity. Secondly, the finding that small countries need not be necessarily less self-reliant than larger countries, in view of size, suggests that human resources play an important part in this regard. Small states, are generally poorly endowed with physical resources, and they depend heavily on human resource to generate their economic activity. Thirdly, since many small states can only attain self-reliance through participation in international trade, due to the fact that their domestic market is very limited, it follows that structured openness is an important factor.