The projects in the iMovie app itself take up very little space. They are composed of thumbnails of very tiny size, that refer to the original media stored in the iMovie library.
So, yes, you can copy or move your iMovie library to an external drive, that has adequate space, and that is formatted Mac OS Extended (Journaled) or APFS. Keep your iMovie app on your internal drive. It will access the library on the external drive. No need to copy back and forth. Then you can have projects as large as you want. All of the media will be stored in the iMovie library on the external drive.
Before you copy your iMovie library to an external drive you should first consolidate the library media. Select the library's name in the iMovie media side bar and do an Edit/Consolidate Library Media. That will insure that all of the media in your library will carry over to the external drive. Same with moving projects from library to library. Before moving the project click on its icon in the project browser screen and do Edit/Consolidate Project Media.
Here's an Apple help link that explains how to manage libraries and projects:
https://help.apple.com/imovie/mac/10.1/#/mov3fa25bae7
-- Rich