Country Size and Exposure to International Economic Shocks: New Evidence from the Financial Crisis

The international Financial Crisis shock of 2008/09 is used as case study with a worldwide data set of 210 states to examine potential resilience factors with special focus on country size, along with other pre-crisis determinants. The cross-country analysis suggests an increasing partial effect of smaller country size on vulnerability with a larger impact magnitude of the Financial Crisis shock. States below a population of around 10 million featured a higher exposure compared to larger states and very small states suffered the most from being more vulnerable. With respect to impact persistence, significant evidence can be found that the shock persistence was prolonged by smaller state size. Also, small states were impacted earlier on average, but the faster shock transmission was mainly linked to their higher GDP per capita and lower pre-crisis GDP growth.