Private Sector and Globalization

Openness confers on small states a potential advantage in achieving the dynamic innovation and technical change that are features of globalization. But limited resource bases and small sectors that find it difficult to achieve international competitiveness mean that it may not be possible to grasp commercial opportunities. Shrinking distances and isolation through the application of modern information technology and associated activities, such as e-commerce, may provide relevant niche areas for small states that have access to competitively priced communications. Successful offshore financial centers have also been established in some of these countries. They could remain successful if the small states concerned can surmount the issues of unfair tax competition and money laundering.

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Information Technology and Electronic Commerce

For small states, globalization brings opportunities as well as challenges. Opportunities stem from the openness of these countries. Challenges arise through their small size and difficulties in achieving international competitiveness. These countries also need to promote a strategic global repositioning of their economies so as to provide an appropriate enabling environment for faster adjustment and change. In this, small states will need external assistance. However, new developments in information technology, communications, and e-commerce may shrink distances and help reduce the disadvantages of remoteness and isolation that characterizes them.

« World Bank Group Global Information and Communication Technologies Site
« Exploiting Information Technologies for Electronic Commerce and Better Public Sector Management (download 154K PDF file)

Offshore Financial Centers

Some small states have become successful in the provision of offshore financial services. The current scrutiny of offshore financial centers (OFCs) and the proposed moves by the OECD could have a profound impact. For some small states which sought to diversify through a focus on this sector, OFC activities are estimated to account for up to 30-40 percent of GDP.

« Offshore Financial Centers: The Role of the IMF

« Financial Sector Assessment Program (IMF Site)

Taxation

The internationalization of economic activity over the last decades has increased competition among tax systems. In 1998, OECD Member countries published a report on harmful tax competition. The report set out criteria for determining harmful tax practices and recommendations for combating them. In 2000, a progress report put out by the OECD identified 35 tax havens—many of them small states—and 47 potentially harmful preferential regimes. Since the publication of these reports, non-OECD and OECD Members have held several consultations to determine an international consensus on how to deal with harmful tax practices.