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Country size and ‘insulation’ from external disturbances

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Summary

This paper considers the relationship between economic size and vulnerability to external disturbances. In order to analyze this issue effectively a model comprising three different-sized economies is constructed. The issue of economic size and insulation is approached from this alternative perspectives depending upon the relative size of (a) the `recipient' country and (b) the ‘transmitting’ country. The results of the analysis indicate that, contrary to popular belief, a small country under floating exchange rates is less severely affected by external economic events than a large economy regardless of the type of external disturbance and the degree of domestic wage indexation.

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Authors and Affiliations

  1. West Virginia University, Morgantown, West Virginia, USA

    Jagdeep S. Bhandari & Morteza Rahmatian

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  1. Jagdeep S. Bhandari
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  2. Morteza Rahmatian
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This paper has been improved by the helpful comments of a referee. We alone are solely responsible for all remaining errors.

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Bhandari, J.S., Rahmatian, M. Country size and ‘insulation’ from external disturbances. De Economist 134, 438–466 (1986). https://doi.org/10.1007/BF01423605

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  • DOI: https://doi.org/10.1007/BF01423605

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