engleski

Smallness of the Economy as a (Dis)advantage: The Evidence from the Selected Interdependent Macroeconomic Data

Small economies are usually classified by the size of their GDP. Among the small states, which can be determined by various criteria, there are many small economies. Smallness of the economy influences the vulnerability of the state, and if it is connected with the other potentially negative factors (land-locked or island position) or reliance on a few export products, it can create vulnerable economies. Concurrently, smallness of the economy can be an advantage, since it provides better conditions for faster economic growth and makes transformations of the economy easier. This paper brings a quantitative comparative study of the small economies, classified by the size of their total GDP. Sets of macroeconomic data (FDI net inflows in current US$ and GDP in current US$ ; external debt and GDP) were studied, for which the correlation between the FDI and GDP was calculated (for forty smallest economies), as was the regression analysis between the FDI net inflows (independent variable) and the Gross Fixed Capital Formation (GFCF), as well as between the FDI net inflows and the growth of external debt for the ten smallest economies between 1981 and 2014. The results were used to describe if there is a significant connection between FDI and external debt and if it can be mathematically modelled. All the data was taken from the web pages of the World Bank. The correlation analysis for FDI and GDP for the same years was also done. The countries that were studied had the smallest forty economies in the world in 1981 (starting year) and in 2014 (final year), regardless of their land area, population, and geographical position. In order to examine the influence of the smallness of economy, the fifteen largest world economies were studied as control group.

small economies ; foreign direct investment (FDI) ; GDP ; external debt ; vulnerability

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