Economic Performance of Economic Performance of Small States and Islands: Small States and Islands:

The Importance of The Importance of GeographyGeography

Harvey Armstrong and Robert ReadHarvey Armstrong and Robert Read

Geography: Natural ‘Handicaps’Geography: Natural ‘Handicaps’

Small sizeSmall size InsularityInsularityArchipelagicArchipelagicMountainousMountainousLandlockedLandlockedTropicalTropicalRemotenessRemoteness

Entities ResearchedEntities Researched

Sovereign small statesSovereign small states

- Under 5m population- Under 5m populationDependent territoriesDependent territories

- France, UK, USA, Netherlands, - France, UK, USA, Netherlands, Australia, New ZealandAustralia, New Zealand

Regions with an unusual degree of Regions with an unusual degree of autonomy (e.g. Faroe Is., French DOMs)autonomy (e.g. Faroe Is., French DOMs)

N = 127, of which islands=74N = 127, of which islands=74

Economic ChallengesEconomic Challenges

Domestic market small (m.e.s.)Domestic market small (m.e.s.)Limited resource baseLimited resource base

- Possible MIRAB response- Possible MIRAB responseNarrow domestic output, exports and Narrow domestic output, exports and

export marketsexport marketsVery open economiesVery open economiesVulnerabilityVulnerability

Responses to ChallengesResponses to Challenges

Export-led growthExport-led growthNiche market specialisationNiche market specialisationDraw resources and technology from Draw resources and technology from

global economyglobal economyEffective use of limited policy portfolioEffective use of limited policy portfolioThe ‘importance of being unimportant’The ‘importance of being unimportant’Cultural distinctivenessCultural distinctivenessSocial capital?Social capital?

Islands and Transport CostsIslands and Transport Costs

Falling over time through combination of transport Falling over time through combination of transport technology, transport infrastructure and production technology, transport infrastructure and production technologytechnology

Other problems: transport monopolies, reliability, Other problems: transport monopolies, reliability, stockholding costs, insurance costs, damage in stockholding costs, insurance costs, damage in transit, diseconomies in loads and routings, transit, diseconomies in loads and routings, asymmetric on- and off-island freight flowsasymmetric on- and off-island freight flows

Other causes of higher island price levels: greater Other causes of higher island price levels: greater use of wholesale systems, diseconomies of scale in use of wholesale systems, diseconomies of scale in retailing and wholesaling, local monopolies in retailing and wholesaling, local monopolies in wholesaling and retailing, local taxation wholesaling and retailing, local taxation arrangements (e.g. liquor taxes)arrangements (e.g. liquor taxes)

Mountains, Landlocked, Tropical Mountains, Landlocked, Tropical ClimateClimate

Mountains: Fragmentation of markets and Mountains: Fragmentation of markets and society; Agricultural and climatic challengessociety; Agricultural and climatic challenges

Landlocked: difficult access to maritime Landlocked: difficult access to maritime container freight systemscontainer freight systems

Tropical: Tropical:

- Agriculture (soils, weather, global - Agriculture (soils, weather, global markets for tropical products)markets for tropical products)

- Health related (especially malaria, - Health related (especially malaria, HIV/AIDS)HIV/AIDS)

Data Sources and ProblemsData Sources and Problems

GNI per capita: World Bank; Own data set GNI per capita: World Bank; Own data set extension; sometimes PPPextension; sometimes PPP

Four categories: under $745 pc, $746-$2975, Four categories: under $745 pc, $746-$2975, $2976-$9205, Over $9206$2976-$9205, Over $9206

Truncated data setsTruncated data sets Non-harmonisation challengesNon-harmonisation challenges AmeliorationAmelioration: robustness checks, least : robustness checks, least

favourable assumptions, expose biases, favourable assumptions, expose biases, classificatory and limited dep. Variable classificatory and limited dep. Variable methodsmethods

Effect of Size: GNI per Capita, Effect of Size: GNI per Capita, 20012001

GNI per GNI per capitacapita

Under Under 3m3m

3m – 3m – 5m5m

5m – 5m – 10m10m

Over Over 10m10m

All All statesstates

IslandsIslands

Under Under $745$745

1515

3333

4848

3939

3131

1616

$746 - $746 - $2975$2975

2424

1414

2424

3030

2525

2626

$2976 - $2976 - $9205$9205

2323

2424

66

1313

1717

1919

Over Over $9206$9206

3838

2929

2222

1818

2727

3939

AllAll 100 100 N=75N=75

100 100 N=21N=21

100 100 N=33N=33

100 100 N=77N=77

100 100 N=206N=206

100 100 N=57N=57

Effect of Size: GNI per Capita, Effect of Size: GNI per Capita, 2001, States Under 3m2001, States Under 3m

GNI per GNI per capitacapita

Under Under 100k100k

100 – 100 – 250k250k

250k – 250k – 500k500k

500k - 500k - 1m1m

1m - 1m - 3m3m

3m – 3m – 5m5m

Under Under $745$745

00

66

1313

2020

1818

1717

$746 - $746 - $2975$2975

2828

2222

2727

4040

1414

3535

$2976 - $2976 - $9205$9205

2828

2828

1313

1010

4545

3030

Over Over $9206$9206

4444

4444

4747

3030

2323

1717

AllAll 100 100 N=39N=39

100 100 N=18N=18

100 100 N=15N=15

100 100 N=10N=10

100 100 N=22N=22

100 100 N=23N=23

Islands, Archipelagos, Islands, Archipelagos, MountainousMountainous

GNI per GNI per capitacapita

Islands Islands

Not Not islandsislands

ArchipsArchips

Not Not archipsarchips

MtnousMtnous

Not Not mtnousmtnous

Under Under $745$745

55

1717

88

1111

1212

88$746 - $746 - $2975$2975

2424

3030

3333

2323

2222

3434

$2976 - $2976 - $9205$9205

3030

2626

2121

3333

3232

2222Over Over $9206$9206

4141

2626

3838

2121

3434

3636

AllAll 100 100 N=74N=74

100 100 N=53N=53

100 100 N=48N=48

100 100 N=79N=79

100 100 N=77N=77

100 100 N=50N=50

Landlocked, TropicalLandlocked, Tropical

GNI per GNI per capitacapita

TropicalTropical

Not Not tropicaltropical

LandlockedLandlocked

Not Not landlockedlandlocked

Under Under $745$745

1616

44

1919

99

$746 - $746 - $2975$2975

29 29

2525

5050

2323

$2976 - $2976 - $9205$9205

3333

2323

1313

3131

Over Over $9206$9206

2323

4949

1919

3737

AllAll 100 100 N=70N=70

100 100 N=57N=57

100100

N=77N=77

100 100 N=50N=50

The Effects of RemotenessThe Effects of Remoteness

GNI per GNI per capitacapita

Under Under 1000km 1000km

1000 – 1000 – 3000km3000km

3000 - 3000 - 5000km5000km

5000 – 5000 – 10000km10000km

All All statesstates

Under Under $745$745

00

00

1212

2020

88$746 - $746 - $2975$2975

00

1414

3232

4040

2929

$2976 - $2976 - $9205$9205

1010

3838

2929

2424

2727

Over Over $9206$9206

9090

4949

2626

1616

3636

AllAll 100 100 N=10N=10

100 100 N=37N=37

100 100 N=34N=34

100 100 N=46N=46

100 100 N=127N=127

The Four-Cluster SolutionThe Four-Cluster SolutionCluster 1Cluster 1 Cluster 2Cluster 2 Cluster 3Cluster 3 Cluster 4Cluster 4

High GNI pcHigh GNI pc XXXX

Upper middleUpper middle XXXX

Lower middleLower middle XXXX

Low GNI pcLow GNI pc XX XXXX XXXX

ArchipelagoArchipelago XXXX

IslandIsland XXXX

MountainousMountainous XX XXXX XX

LandlockedLandlocked XXXX XXXX

TropicalTropical XXXX XXXX

RemotenessRemoteness XXXX XXXX

SizeSize XXXX XXXX

AgriculturalAgricultural XXXX XXXX XXXX

ManufacturingManufacturing XXXX XXXX XXXX

TourismTourism XXXX

ResourcesResources XXXX XXXX

FinancialFinancial XXXX

SovereignSovereign XXXX XXXX XXXX

Grouped (Censored) RegressionGrouped (Censored) RegressionInc. ARCHIPInc. ARCHIP Exc. ARCHIPExc. ARCHIP Inc. ARCHIPInc. ARCHIP Exc. ARCHIPExc. ARCHIP

CONSTANTCONSTANT 27959 5.85**27959 5.85** 27429 5.50**27429 5.50** 26473 5.53**26473 5.53** 26458 5.45**26458 5.45**

AGRICAGRIC -1239 -1.40 -1239 -1.40 -1516 -1.59-1516 -1.59 -1015 -1.28-1015 -1.28 -1188 -1.47-1188 -1.47

MANFGMANFG 1616 1.79*1616 1.79* 1702 1.84*1702 1.84* 1828 1.88*1828 1.88* 1964 1.99**1964 1.99**

LOGDISGLOBE3LOGDISGLOBE3 -4692 -3.62**-4692 -3.62** -3936 -2.90**-3936 -2.90** -5555 -4.14**-5555 -4.14** -4974 -3.67**-4974 -3.67**

ISLANDISLAND 2091 2.16**2091 2.16** 1999 2.00**1999 2.00**

ARCHIPARCHIP -902 -0.96-902 -0.96 -554 -0.67-554 -0.67

MTNMTN -852 -1.19-852 -1.19 -556 -0.75-556 -0.75 415 0.60415 0.60 654 0.93654 0.93

LANDLOCKLANDLOCK -1817 -1.74*-1817 -1.74* -2646 -2.52**-2646 -2.52** -2079 -1.79*-2079 -1.79* -2934 -2.57**-2934 -2.57**

TROPICTROPIC -3430 -3.66**-3430 -3.66** -3047 -3.17**-3047 -3.17** -3139 -3.59**-3139 -3.59** -2949 -3.34**-2949 -3.34**

TOURISMTOURISM 3158 2.56*3158 2.56* 3421 2.59**3421 2.59** 2937 2.97**2937 2.97** 2944 2.92**2944 2.92**

SOVRTSOVRT -5946 -3.92**-5946 -3.92** -6579 -4.19**-6579 -4.19** -2727 -2.96**-2727 -2.96** -3183 -3.48**-3183 -3.48**

RESOURRESOUR 4023 2.91**4023 2.91** 3175 2.31**3175 2.31** 4815 3.44**4815 3.44** 3872 2.91**3872 2.91**

FINANFINAN 2526 2.67**2526 2.67** 3043 3.13**3043 3.13** 2599 2.98**2599 2.98** 2836 3.18**2836 3.18**

POPULATIONPOPULATION 0.04 0.150.04 0.15 -0.26 -0.98-0.26 -0.98 0.15 0.490.15 0.49 -0.17 -0.56-0.17 -0.56

Log-likelihoodLog-likelihood -83.5870 -83.5870 (N=100) World (N=100) World

BankBank

-85.3831 -85.3831 (N=100) World (N=100) World

BankBank

-119.9989 -119.9989 (N=127) (N=127)

OWNCODE01OWNCODE01

-121.7358 -121.7358 (N=127) (N=127)

OWNCODE01OWNCODE01