The Great Recession and Small States

Abstract

This paper raises a simple question: relative to the rest of the world, how was small state real per capita GDP growth impacted by the Great Recession of 2008-2009? While holding constant average business cycle dynamics, we isolate this shock to measure how small countries around the globe responded to the recession - something that has not been studied before. The results indicate that while small states had a more pronounced contraction than the rest of the world going into the Great Recession, their rebound was both stronger and quicker, allowing them to return to their long-run growth rates more rapidly than other countries. Additionally, the methods and data configurations used in this study will provide guidance to researchers analysing future global exogenous shocks.