Economic non-viability of small countries

Modern production methods, particularly in industry, are usually characterized by the important economies of scale they yield. The larger the domestic market for goods, the more likely efficiencies of scale will be realized.

Over 50 developing countries have a population of less than 5 million, and about 80% of the developing countries have less than 15 million inhabitants. The level of purchasing power, even in countries with larger populations, is often below that of small European countries. Thus, with respect to a very large number of productive activities, the domestic markets of the vast majority of developing countries are not large enough to enable them to benefit from the cost-reducing advantages of large-scale production methods. As a result, numerous industries are operating below capacity. Costs of production are driven up, and the parallel development of similar industries in each country of a particular region leads to a waste of resources that can amount, in several technologically advanced sectors, to some thousand millions of dollars in a particular continent. Often the size of the market simply precludes developing countries from entering new lines of production, thus impeding introduction or continuation of the import substitution process.