The Economic Diplomacy of Small States. A Case Study of the Grand Duchy of Luxembourg: Trade and Services, Official Development Assistance (Oda), Foreign Direct Investment (FDI)

Abstract

In the contemporary globalized, multi-polar and competitive conditions, small states, which count for more than half of the world’s states, through economic diplomacy endeavors aim to position themselves in the best possible way, in order to assure their economic development and political influence. Being constrained by their size, in terms of population and economy, small states follow different strategic choices in different regions of the world. With an area totaling 2,586 km2 and a population of 590,667 in 2017, the Grand Duchy of Luxembourg is one of the smallest countries in Europe, and ranked 179th in size of all the 194 independent states of the world. Despite its size the country has been advocating openness, and enjoys a successful track record in economic diplomacy. There are, however, no in-depth academic studies to take a detailed account of its parameters and to identify its strengths and weaknesses. The present work uses Luxembourg, as a case study for evaluating economic diplomacy of small states. This is the first study of the Grand Duchy’s economic diplomacy. Based on statistical data, it goes beyond a mere account, by critically evaluating Luxembourg’s economic diplomacy in terms of trade, Foreign Direct Investment (FDI) and Official Development Assistance (ODA). While in need of imports in trade and investment due to its limited production possibilities given its size and the consumption needs of its affluent society, we claim that, without shying away, the country dared to compete in the globalized markets using an efficient and effective, well developed economic diplomacy, in order to: a) export its goods and services, b) attract inward FDI, while c) sharing part of its wealth with developing countries through the provision of ODA of 1.06% GNI, outreaching most EU countries and exceeding the UN target of 0.7% GNI by 2015. Based on the results of Luxembourg as a case study, we argue that size is not a determinant of a state’s economic diplomacy success.