Tiny states have for too long been forced to adopt one-size-fits-all trade models. A new way of looking at small economies, tailored to their specific needs, should recognise that aid spending can have a major macroeconomic impact and that markets often fail. Trade policies should take into account diseconomies of scale, distance, geographical fragmentation and vulnerability.
Below are the key messages emerging out of PiPP’s fourth discussion paper:
- Washington Consensus- type models largely ignore the diseconomies of scale, distance, geographical fragmentation and vulnerability faced by micro states.
- Recognising that aid spending has a big macroeconomic effect would help focus policies in more useful areas.
- With an increased focus on international trade agreements, domestic trade policy is often forgotten; yet building up the ability of companies to produce for foreign markets is critically important.
- Technical assistance should be more focused.
- Efforts to build productive capacity should focus on equity, infrastructure, disaster insurance and reducing the effects of distance.
- Understanding national and regional specifics requires maintaining policy space in trade agreements; acknowledging the limits of negotiating capacity; encouraging national trade facilitation; and understanding the detailed demands of each country in negotiations.