Press Release

Credit Suisse Research Institute publishes third study exploring the success of small countries

The latest study from the Credit Suisse Research Institute (CSRI) entitled ‘Small countries: The way to resilience’ finds that the recipe for success for small countries principally lies in their economic openness. This allows them to offset size disadvantages. At the same time, this openness means that they must be particularly vigilant with regard to shocks that could threaten their economic well-being and build strategies to foster economic resilience.

The latest study updates the theoretical framework from previous editions to define small countries and expands its sample size to include all 193 UN member states. The authors adopt a multidimensional approach using principal component analysis to overlay territory size with population and calculate a country-size index. They thereby identify 86 small countries globally. To analyze and contrast small countries’ vulnerabilities and factors of resilience with those of large countries, they further develop two indicators. The Economic Vulnerability Indicator (EVI) measures an economy’s exposure to shocks whilst the Economic Resilience Indicator (ERI) provides a framework for assessing a country’s economic robustness to deal with such shocks, as well as the readiness to adapt to changing economic circumstances.

Sara Carnazzi Weber, Head of Swiss Economics at Credit Suisse, said: “Since 1945, there has been a significant increase in the number of countries, resulting in a notable decrease in the average country size. This points to a crucial underlying trend: the rise of small states. Small countries have been able to offset their size disadvantages through economic openness. This interconnectedness has also made physical dimensions of power, which had been historically linked to territory size and military strength, less important, resulting in a decreased risk of conflict. In such a stable environment, it became easier to be small and successful. New challenges, however, abound, including a re-ordering of international relations, risks of pandemics and climate change. Small countries must hence be particularly vigilant against global shocks that could threaten their economic well-being.”

The results show that small countries often exhibit a high degree of economic vulnerability, that comes along with high dependencies on the rest of the world (high weight of international trade, concentration of imports and exports, high dependency on energy imports and foreign human capital just to name a few examples). In a sample of 32 mostly highly developed countries, Ireland and Switzerland are the two countries with the highest vulnerability score. High economic vulnerability, however, often goes hand in hand with high economic resilience as small countries find strategies to overcome their vulnerabilities through high macroeconomic stability, economic diversification, financial soundness of the private sector and high readiness to adapt to changing economic circumstances. Hence, Switzerland is also leading the ERI as the country with the highest economic resilience.

Key highlights

  • The crucial role of trade openness - by integrating into the global economy, smaller countries can mitigate the diseconomies of scale stemming from their limited size. Hence, economic openness is a prerequisite for prosperity, particularly for smaller countries.
  • The erosion of state sovereignty appears to impact smaller countries more than larger ones - they should therefore continue to preserve those parts of sovereignty that are a prerequisite for promoting and protecting their economic niches.
  • Economic vulnerability - The Credit Suisse Economic Vulnerability Indicator measures how vulnerable a country is to shocks compared to the average country in our sample of 32 countries worldwide. It is evident that smaller countries often exhibit a high degree of vulnerability: nine of the 14 small countries in the sample show above-average vulnerability.
  • Economic resilience - The Credit Suisse Economic Resilience Indicator (ERI) measures a country’s resilience to withstand or absorb an economic shock and adapt to changing circumstances, again in comparison to the other countries in the sample. In the ranking of overall economic resilience, small countries like Switzerland and Denmark come in first and third place. Two more small countries (the Netherlands and Finland) rank fourth and fifth.
  • High economic vulnerability often goes hand in hand with high economic resilience.

Nannette Hechler-Fayd’herbe, Chief Investment Officer for the EMEA region and Global Head Economics & Research, commented: “The global political economy not only enables, but also challenges small countries. The current geopolitical tensions have made it apparent that multilateralism and mutual trust between countries and governments, on which small countries particularly depend, cannot be taken for granted. The Russian-Ukraine war, the simmering Sino-American tensions and the emergence of a non-aligned block of emerging market countries are re-shaping the world into a multipolar system where size is again becoming a comparative advantage. Challenges of a new kind such as those experienced during the Covid-pandemic and with the on-going climate change raise additional vulnerabilities that small and large countries are differently equipped to overcome and master. Operating in such an ever-changing environment is a difficult endeavor – particularly for small countries. Despite their size limitations, however, many small countries have proven that they can achieve prosperity and demonstrate above average economic performance.”

The ‘Small countries: way to resilience’ report is available at:
Credit Suisse Research Institute