Why Small Countries are Economically Viable in Globalized world ?

From amongst the large number of small countries, some are developed while many others are still struggling to prosper. The small countries that have developed have followed a specific path that has allowed them to attain a competitive advantage with respect to the other countries. We maynot exactly attribute a particular reason for the underdevelopment of a particular country but we can clearly pinpoint why a particular country has developed over a particular period of time.

For small countries, the case may be different than that of the bigger countries. The concept of “small of beautiful” applies when we take reference of small countries that have prospered a lot in short period of time. 

Let us study the reason that pushed small countries hard enough to prosper in a short span of time.

1.             Openness to trade:

Small countries are generally found to be open to the trade. They are less hesitant to enter to the international business. The reason behind this is that, small countries develop themselves competitively in some niche products or services that have been ignored by the larger nations. Eg: Singapore, Hong Kong, Switzerland etc.

2.             Social Cohesion:

A good example of social cohesion is demonstrated by small countries. Small countries are characterized by less/no problems amongst the ethnic communities, more social harmony, equal and easier to run the country. Hence a better government because of the political stability resulting from the social cohesion.

3.             More adaptive and responsive to changes:

Smaller countries are generally found to be more adaptive than the larger countries. Because of the vulnerability factor, they keep themselves updated of the major changes that are going to take place in the global business or politics. They tend to have better developed sensing mechanism in terms of what is happening in the rest of the world. As such they develop a proactive mechanism to adjust to the changes of the volatile business and political world.

4.             Stable political system and clear economic goals:

If we study the characteristics of the small countries we find that they possess well developed political system that promotes stability and favors economic growth. For a country like Singapore, it has a political system that favors political stability and has clearly identified economic policies that favors rapid development. E.g.: Singapore political system that favors single party rule.

5.             Export oriented:

Because of the relative smaller size of the national consumption (relative to total income), small economies tend naturally to be more export oriented that the larger economies.

6.             Prioritized focus:

The focus of small countries is limited to certain priorities like: education (thus more skilled labor force), innovation(thus more investment and employment), export promotion, competitiveness etc. Most of the time they are not engaged in the issues of international politics, politics over oil, support for democracy etc., that bigger nation find themselves.

7.             Preferential economic advantage:

Many international policies and regulations related to international trade favor small nations. The arrangements are such that small countries are less exposed to trade quotas and other restrictions as they don’t produce in large quantities.

8.             Optimum utilization of resources:

Similarly economic efficacies are found more in small countries. Because of the scare resources, small countries specialize in the maximum utilization of the resources. For example we can see how Japan is proactive to the natural calamities and disasters in spite of having scarce resources.

One important discussion that must be introduced while describing about the development phenomena of some countries is: On what cost factor those countries are developing ? For example for those countries which haven't prospered , we must recognize that their concerns of political freedom ahead of economic liberalization has put a cap on the pace of development.We can relate this to bigger countries like India also. Democracy, poverty, humanitarian values, etc have caused those nation states to focus their resources and energy in diverse sectors , which is, at the expense of the industrialization. Countries based on democracy have to balance their activities between long-term growth needs and short-term social benefits. For example Qatar escapes itself from this phenomena and thus its emphasis on economic freedom before political freedom has served well in the areas of attaining systematic growth. Hence small countries have been prospering mostly because of the value they put on economic development in contrast to political freedom.

But again the question is, Is it really justifiable to attain development at the cost of the social justice and freedom of its people ?


(P.S: This write-up is based on my learnings from MOOC courses and personal research)