1 - Economic Smallness

Summary

Any study that attempts to explain why CARICOM nations have not attained a higher level of structural transformation implies that they can attain a higher level of structural transformation and potentially have a diversified economic structure of production. However, some prominent development economists in the early post–World War II years would have disputed this implication mainly because CARICOM nations are geographically and demographically small. They asserted that small countries have a narrow natural-resource base, which makes a high level of structural transformation virtually impossible. But to accept the assertion that economic smallness predetermines a nation's economic development means that policies designed to move CARICOM nations beyond their predetermined level of economic development are futile. Nevertheless, the history of some nations, which are not well-endowed with natural resources, but which have attained a high level of economic development, makes it difficult to accept the assertion of the early development economists. Furthermore, the early development economists did not foresee the advent of knowledge-skills technologies and the possibilities they offer nations that can acquire them. Knowledge-skills technologies have been changing production functions and they can potentially allow a small country to have a diversified economic structure of production and attain a high level of economic development. This chapter critically evaluates the argument that economic smallness predetermines a nation's economic structure of production and its level of development.

For approximately two centuries after the publication of Adam Smith's Wealth of Nations ([1776] 1976), economists in the more developed nations did not concern themselves with the economic size of nations as a cause of economic growth and development. This neglect may have been partly due to economic theory that states international trade helps nations overcome the smallness of the domestic market and that when nations specialize in the production of commodities in which they have a comparative advantage, they realize high rates of economic growth and development. Moreover, colonies were considered extensions of metropolitan economies and the physical boundaries that delineated a metropole from its colonies were assumed not to exist.