Economic resilience and market efficiency in small states

Abstract

Economic resilience is the ability of an economy to withstand and rebound from the effects of adverse shocks. This is dependent upon the efficiency with which resources are allocated and can be reallocated following changes in exogenous conditions. Markets are a key factor in the allocation of resources, be they capital, labour, goods and services. Therefore, the extent to which markets operate efficiently is an important determinant of economic resilience. On the other hand, it is to be considered that instances of market failure are more common in small, vulnerable economies, which consequently have greater need for policy measures aimed at enhancing the efficiency of markets or at replacing them with appropriate mechanisms conducive towards building economic resilience. In this context, it is important to avoid instances of policy failure, which may nevertheless apply to a larger extent in small economies.