Micro States Economics. the Mirab and Site/Profit Model in European Small States

Seminar paper from the year 2017 in the subject Economics - International Economic Relations, grade: 1,7, University of Göttingen, course: Micro States (Seminar), language: English, abstract: Being socioeconomically successful is a task in itself. However, being socioeconomically successful as a Small State seems to be a more difficult task. If you look at the gross domestic product per capita you might not find a correlation between a low GDP per capita and the smallness of a state. If you take a look at the GDP in absolute numbers you will find a correlation. GDP figures often cover up economic troubles which Small States experience. The problem consists in the higher vulnerability of Small States, in general and economic terms. Briguglio has pointed out how smallness hampers economic growth and/or makes it dependant on others.

To give some examples: Small Economies depend on imports from foreign markets because their smallness prohibits the production of any goods beyond agriculture necessities. To benefit from the human productivity rise Small (Island) States often import more than they can export. As a result of that foreign investors are needed to survive the trade deficit in the long run. Moreover, Economies of Scale is not possible and the fix costs are relatively high.

If the Small State is an island, remoteness makes the situation even more difficult. Large stocks are necessary and the per-unit transport costs are enormous. Especially Small Islands States are dependant on external markets and external financing if they want a living standard that is near to the average living standard of the world. The literature has mainly pointed out three strategies for tackling vulnerability as a Small Island State: The MIRAB Model, the SITE Model, the PROFIT Model. In particular Bertram and McElroy have put a lot of work into analysing and classifying these concepts. They mainly focussed on small island economies in the Caribic and in Oceania. That leads to the question how small states on dry land tackle their socioeconomic vulnerability. In the investigation of this question here, tha main interest lies on Europe because Europe includes Small States on the continental mainland. A look is taken into the vulnerability index of Briguglio from 1985. Antigua & Barbuda appear first as the most vulnerable state. The following ranks are dominated by caribic and oceanic islands. On rank 16 Malta shows up as the first European country. The next European nations to follow are Cyprus on rank 26 and then Portugal on rank 55.