Population Thresholds and Classification Stability: Evidence from the World Bank’s Small States Classification Rule

Baran Han

No 11497, Policy Research Working Paper Series from The World Bank

Abstract: The World Bank uses a population threshold of 1.5 million as the operational reference point for its Small States classification, with implications across several financing frameworks. This paper asks whether there is a break at the threshold in the macroeconomic outcomes associated with small country size, and how the classification rule should be administered given that population estimates are revised. In cross-country data for emerging market and developing economies over 2000–24, growth volatility, trade openness, and terms-of-trade volatility decline smoothly with population size across regression, nonparametric, and threshold-test evidence, with no detectable break at 1.5 million or at any alternative cutoff between 1 and 10 million. In a newly assembled real-time data set of 15 annual vintages, half of the published population estimates are revised by more than 1 percent within five years, and an estimate that is 1 percent above the threshold faces roughly a one-in-four probability of being revised below it within five years. Of the three Small State status changes since 2019, two resulted from revisions, not demographic change. Within the existing threshold-based framework, the paper evaluates four implementation rules, including the current single-year rule, and recommends an asymmetric persistence requirement—immediate entry and exit only after three consecutive years above the threshold—supplemented by an advance-notice flag based on estimated crossing probabilities.

Date: 2026-11-03
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