This paper applies Katzenstein''s framework laid out in Small States in World Markets to analyze the political-economic development of the Baltic States, with particular emphasis on the recent crisis of 2008-2010. On one level, the Baltic States share many structural similarities with the seven countries that were covered in Katzenstein''s seminal work. "Smallness effects" predicted by Katzenstein can actually be expected to be higher in Baltic States because they are even more vulnerable, both economically and politically. Indeed, Baltic development has been heavily influenced by the perceived vulnerability and their specific historical circumstances. At the same time, there are also striking differences: instead of democratic corporatism and domestic compensation, the Baltic countries largely opted for state-led neoliberal development. The recent crisis serves as a case in point as the Baltic countries have pursued orthodox adjustment policies by cutting budget expenditure and increasing labor market flexibility. Katzenstein was also careful to note the differences among the seven European corporatist regimes. Following this line of argument, the Baltic countries also diverged on important dimensions. One of the most important ones is political legitimacy, which has also been at the core Katzenstein''s argument. Lithuania and Latvia are characterized by deep mistrust in the government, which inter alia causes serious difficulties for macroeconomic adjustment. However, Estonia remarkably and seemingly contrary to Katzenstein''s predictions, has been able to keep a significantly higher level of legitimacy, and actually emerged from the crisis with higher confidence in government. The combination of above-mentioned similarities and differences make the Baltic countries an interesting case for revisiting Katzenstein''s argument in yet another geographical and temporal setting.
