Small Island States face diseconomies of scale in public services

Published by Economisch Bureau Amsterdam on

Small Island Developing States (SIDS) are unable to achieve economies of scale due to their limited population size and local demand, large distances from major economies, reliance on foreign skilled labor, imperfect competition, disputes over land management, and high costs of addressing environmental issues. These diseconomies of scale lead to higher public expenditures and pose a significant barrier to economic growth and development.

The study, conducted by Paul Tauxe, analyst at Amsterdam Bureau for Economics, provides a comprehensive econometric analysis of the factors behind diseconomies of scale and how they uniquely impact small island states. The analysis includes data from 215 countries over the period 2018–2022 and offers insights into solutions that could help improve public spending efficiency:

  • Investments in adapting technological innovations to reduce reliance on imports.
  • Developing population and migration policies.
  • Policies aimed at promoting export-oriented sectors.
  • International collaboration.

The Working Paper, titled “When Small Gets Too Big: Exploring Diseconomies of Scale in Island Economies,” was published by Amsterdam Bureau for Economics. It combines an extensive literature review with new empirical analyses, offering valuable insights for policymakers and international organizations.

For the full report, click here.

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