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The Global Financial Crisis and Trade Prospects in Small States

image of The Global Financial Crisis and Trade Prospects in Small States

This is the first study to look at the trade effects on small states of the current global slowdown. Export industries in these countries have been affected at least as much as those of other developing countries. Given their reliance on trade, this means that the overall economic impact on small states may be greater than for other developing countries, all the more so for those countries exporting minerals and fuels, and ‘luxury’ goods and services, such as beef and tourism. The authors suggest a number of policy responses for governments of small states which may help to address the issues that arise.

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Other Direct Channels of Transmission of the Crisis in Small States

Trade is only one of the channels through which the crisis transmits its effects to developing countries. Given the degree of openness of small states, it is likely to be the most relevant channel in several cases. However, to put the discussion in context, it is worth briefly examining the other direct channels and the way they may impact on small states. Te Velde et al. (2009b) identify three areas other than trade where global shocks induced by the crisis may hit developing countries’ economies: private capital flows, remittances and aid. We adapt the discussion in te Velde et al. (2009b) in what follows.

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