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There have been various attempts to derive a single index of countries' macroeconomic vulnerability to exogenous shocks. It is now generally accepted that small developing states on average are particularly vulnerable, as evidenced by their historical volatility of aggregate output. Openness to trade is a key source of this volatility, but it has also contributed to these states' comparatively strong average economic growth. Exposure to natural disasters and external financial flows are other significant potential sources of macroeconomic vulnerability. There are a number of difficulties associated with drawing these variables into a single index, and there seems to be limited scope for employing such an overall index beyond proving that small developing states are generally more vulnerable. Instead, the focus should be on individual characteristics that define a country's vulnerability to particular types of shock. Such an approach will provide information for policy makers and may indicate where small developing states-or regional and international bodies that represent them-could beneficially engage in the international agenda. This may be in initiatives aimed at reducing shockspredominantly focused on the poverty reduction agenda-or reducing global processes that threaten to exacerbate the already high levels of vulnerability. ; peer-reviewed

AbstractThere is no widely accepted definition of a small state. Most previous definitions have been based upon arbitrarily chosen cut‐off values of selected criteria. The present study attempts to categorize the size of 190 states according to population, land area and total income. An initial categorization is based upon observation of each series to identify discontinuities in the distributions. Cluster analysis is then employed to identify groups of countries that share similar size‐related characteristics. A classification based on non‐hierarchical cluster analysis is proposed, generating four clusters from equally spaced initial cluster‐centres. On this basis, 79 countries are classified as 'small'. The reasons for deviation from recent categorizations of small countries are explored, the primary cause being the inclusion of some countries with very low levels of income. Copyright © 2002 John Wiley & Sons, Ltd.