Some stylized facts

Although there are some obvious caveats associated with the data (diffe-rent reported years, some comparability problems, etc.), it is clear that there are several countries with a very high GDP per capita. In five VSC,

98 Note that data on public sectors of VSC in Table A.14 have not been used to run the regressions in Chapter 3, because they are not harmonized. Table A.14 should there-fore only be viewed as a broad-brush picture of VSC economies.

namely Iceland, Liechtenstein, Luxembourg, Monaco and San Marino, GDP per capita exceeds US $ 20,000, which is quite remarkable, given that it approximately equals the EU 15 average⁹⁹(= $ 20,546) for 1997.

As already mentioned, the common feature of these highly developed VSC is their geographic location in continental Europe, with the obvious exception of Iceland. There are only three other VSC with a comparable level of wealth, namely Andorra, the Bahamas and Brunei.

When we take these eight countries as examples of highly successful VSC, it is not possible to detect a single common determinant of their wealth. We observe that there are four countries with direct access to the sea (Bahamas, Brunei, Iceland and Monaco), two countries which rely heavily on their natural resources (Brunei: crude oil and natural gas;

Iceland: fishing and aluminum), four countries with a considerable pro-portion of tourism contributing to GNP (Andorra, Bahamas, Monaco and San Marino), five countries specializing in financial services or bank -ing (Andorra, Bahamas, Liechtenstein, Luxembourg and San Marino) and, finally, one country with an obvious position in the very narrow economic niche of hosting athletes, celebrities and other rich from all over the world by virtue of being a designated tax haven, especially for personal income tax (Monaco).

One common denominator might be the existence of a considerab-ly large service sector in successful VSC (see Table A.15), where the pro-vision of the service may be either restricted to VSC territories (tourism) or may be international in the sense that clients and/or customers need not visit the VSC physically (financial services and banking). It is a fact that the provision of services exhibits fewer economies of scale than in-dustrial production. We therefore should not be surprised by that spe-cialization from a (narrow) point of view concentrating on production technologies. Hence, the picture that emerges, although not easy to ex-plain, is rather coherent, and size clearly plays a role in shaping not only the public sectors of VSC, but also their private sectors.

It is however somehow surprising that many of the remaining 13 low-income VSC seem to have specialized in economic activities very similar (see Table A.15) to those of the high-income VSC, and the group of 13 also exhibits a high proportion of economic activity in the tertiary

99 OECD figures for PPP current prices.

sector.¹⁰⁰This fact might be an indication that the simple advice to spe-cialize in financial services and tourism is by far not enough to guaran-tee a high living standard. Note further that Liechtenstein, for example, which is often associated with its specialization in financial services, to our surprise has a smaller service sector than its neighbor countries Austria and Switzerland (see Section 5.2). It has to be admitted, how ever, that in Liechtenstein, the financial services branch constitutes a con si -derable proportion of the comparatively small service sector. We will come back to these important questions later on.

Not unexpectedly, we observe high import ratios and export de-pendency ratios for virtually all VSC in our sample which comply with international economic theory and evidence. Furthermore, there seems to be a relationship between openness, as measured by imports as a per-centage of GDP, and per capita GDP, which would, again, be no sur prise (see, also, Section 5.2). Openness as a substitute to tiny national markets has already been mentioned as a strategy to overcome constrained growth paths. The export dependency ratio in Table A.14 rests crucially on the definition of neighbor countries, since that question is not a trivi-al one for island economies. Unfortunately, data are not available for trivi-all the VSC, but continental European VSC display an extremely high export dependency. Without having accurate data on Liechtenstein, Mo -naco and San Marino, we are convinced that we are on the safe side in expecting their export dependency ratio as calculated in Table A.14 to be clearly above the figure of Luxembourg (61%). Such a high dependency reflects the political and economic stability in Western Europe and is – within a stable political and economic environment – not detrimental to VSC economies. On the contrary, it is supposed to be a prerequisite for a flourishing VSC economy.

Unemployment, growth and inflation rates displayed in Table A.15 should be treated with caution, since data sources may not be consistent, base years may differ and figures refer to a single year without taking busi ness cycles, natural hazards etc. into account. Bearing these caveats in mind, it is however interesting to note that besides the enormous range of unemployment rates in VSC, growth rates (with the exception

100 A correlation between per capita GDP and the proportion of the tertiary sector con-firms the notion of different consequences of specializing in services. The Pearson correlation coefficient is low (0.161) and insignificant.

of Palau) and inflation rates are within a range that complies with OECD member averages. Especially inflation rates are surprisingly low compared to world averages. In three cases we even observe negative in-flation rates, which generally indicate periods of recessions either due to business cycles, to natural hazards or to structural economic problems.