Does geography play a role in varying development outcomes

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It has long been recognised that geography plays a critical role in the economic performance and development of countries. As early as 1748 Montesquieu noted how climate had an effect on the rigour of workers stating, "The inhabitants of warm countries are, like old men, timorous; the people in cold countries are, like young men, brave." (Montesquieu, 1748). Climate, natural resource endowment and access to markets all determine to an extent the ease of human settlement and sustained growth within an area. But to what extent does geography define the economic destiny of nations? Is geography less of a fundamental cause of disparities in economic development today? Huge advances in technology are increasingly enabling us to overcome adverse geography and it cannot be denied that other factors are influential in determining levels of economic development.

Developing countries largely have subtropical or tropical climates (Todaro and Smith, 2009) and nearly all countries lying within the geographical tropics are poor (Gallup et al, 1999). The extreme humidity and heat experienced in tropical countries can often exhaust workers and seriously deteriorate their levels of efficiency and productivity. Tropical climates are also associated with the poor health of animals and often low productivity of crops (Todaro and Smith, 2009). Consequently tropical countries have amongst the lowest GDP per capita levels in the world. Only two tropical countries in the 30 countries with highest purchasing power parity per capita and they are the tiny nations of Singapore and Hong Kong (Gallup et al, 1999). Tropical countries have a mean income of $3,326 compared to $7,874 in the subtropics and $9,302 in temperate countries (Gallup et al, 1999). These disparities in income are persistent throughout history with Western Europe having incomes on average 2.9 times larger than Africa in 1820 and 13.2 times larger in 1992 (Gallup et al, 1999) and given the extent of income inequalities seem unlikely to converge in the near future.

Climate is also critically important in establishing a prosperous agricultural industry. Rainfall is essential for prosperous agricultural growth. In 1990 those countries with rainfall averaging more than 1cm a month in their capital have an average GNP per capita of $7,320 whereas those with less than 1cm had a significantly lower GNP per capita of $2,475 (Kenny, 1999). Plants and animals suitable for domestication and farming are unevenly distributed around the world with most species being found in Western Eurasia. Of the 14 mammals to have been domesticated 9 are found in Eurasia whilst South America is home to only one (the llama) and Sub-Saharan Africa has not one single mammal suitable for domestication (Olsson and Hibbs, 2005). Using econometric analysis Olsson and Hibbs (2005) conclude that the effects of geography and biogeography, such as a lack of naturally occurring plants and animal species for farming, have a highly significant effect on contemporary economic development and as much as 50% of log output per capita can be explained using variables for geographic characteristics.img001.jpg

Figure 1: The Brandt Line, Brandt (1980) cited in Potter et al, 1999, p21

Others, however, also recognise a distinct trend between the North and South, with developing countries being predominately found in the Northern hemisphere, with the exception of Australia and New Zealand. This is known as the North- South divide or Brandt line which can be seen in figure 1 below (Potter et al, 1999). A study carried out by Ram (1997) used distance from the equator as an explanatory variable in regressions to estimate development indicators such as GDP per capita, life expectancy and average schooling. Using cross country data from 1960, 1985 and 1993 Ram found distance from the equator to be highly statistically significant in all models. In fact using 1985 data he found " a 20-degree increase in the latitude raises real GDP per capita by about $6,000, raises average adult schooling by nearly 2.5 years, and increases life expectancy by almost nine years" (Ram , 1997).

In terms of location it can also be noted that developed countries are likely to be grouped together geographically, often forming 'super regions' such as the Euro zone and NAFTA through globalisation and freer trade amongst neighbouring nations (Potter et al, 1999). As members of trade blocs continue to trade amongst themselves and practice protectionism on outsiders, rather than face the potential decline of their own industries, developing countries continue to face barriers to trade. The tariffs imposed on competitively priced produce from developing countries make it increasingly hard for developing countries which are not part of these trade blocs to develop their export industries and if this continues it is likely that these disparities between geographical regions are likely to be exacerbated (Todaro and Smith, 2009). Data shows that if you have richer neighbours you are more likely to have a higher income yourself, in 1990 the 41 countries whose land neighbours had an average GNP of capita of under $2,500 had an average income of $1,617 per capita whilst those countries with neighbour's incomes averaging over $2,500 had a substantially larger income of $7,276 (Kenny, 1999).

Figure 2: Gallup et al, 2009 p56Access to markets, often determined by the geography of regions is also crucial in determining levels of economic activity and development. Isolated regions who suffer from adverse geography face high transport costs to both export and import goods which seriously limit access to markets in these regions. (Gallup et al, 1999). Those regions which were in the past isolated only developed extensive human settlements later (such as America and Australia) as the vast distances made the diffusion of technology and trade difficult. Landlocked economies often face higher costs to trade and consequently have significantly lower incomes ($1,771 for non- European landlocked countires compared to $5,567 for coastal non-European economies) (Gallup et al, 1999). As a result many living in landlocked countries choose to migrate to coastal economies in the hope of attaining a higher quality of life. The poverty associated with being a landlocked nation is particularly visible in Sub-Saharan Africa where only 19% of the population live within 100km of the coast. This concentration of population in land-locked regions of Sub-Saharan Africa can clearly be seen in figure 2 (Gallup et al, 1999).

However the difficulties associated with living in a landlocked region or an area suffering from adverse geography are becoming increasingly less of an issue. Huge advances in travel have made transport significantly quicker and more affordable. Internet technology has also made business and social communication almost instant and often at zero cost once capital has been installed. Many refer to this phenonemum of compression of space by time as the 'shrinking world' which can be seen in figure 3 (Potter et al, 1999). However if this technology is not made more increasingly available in developing countries it is likely that the poorest of countries ir regions are likely to be left behind.

Figure 3- Potter et al (1999)

The geography of nations and its natural resource endowment can give countries an advantage in prompting growth and development with the environment often being viewed "as an economic commodity valuable not for itself but for what it offers 'us'" (Hayes, 2005, p181). The oil-rich Persian Gulf States are an example of countries with favourable resource endowment. The revenues created from oil exports have enabled the United Arab Emirates to make significant investments in infrastructure in order to improve quality of life and develop through diversifying into other industries such as tourism (Todaro and Smith, 2009). An abundance of natural resources can therefore be seen as a store of wealth, enabling countries to either trade their resources to generate income or to continue to store wealth in these resources (Todaro and Smith, 2009).

However, contrastingly, in their 1997 study Natural Resource Abundance and Economic Growth J. Sachs and Warner (1997) find that there is a surprising negative trend between a high level of natural resource endowment and growth. They find that countries which have relied heavily on natural resource based exports such as fuel, mineral and agricultural products since the 1970s have grown significantly slower than resource poor countries such as Taiwan and Singapore (Sachs and Warner, 1997). They argue that those countries which have an abundance of resources can often be too focused on these sectors particularly agriculture and choose to forgo education in order to work in resource based exports. This lack of skilled workers inhibits growth, meaning whilst resource poor countries will focus on creating a highly skilled work force which innovate and allow the economy and manufacturing industry to develop (Sachs and Warner, 1997). So to this extent natural resource endowment can be a disadvantage to developing countries. Moreover some countries whom are rich in natural resources such as Latin- America cannot afford the significant investments required to exploit their natural resources (Todaro and Smith, 2009).

However one must differentiate between resource endowment and natural resource dependence. Nations may be endowed with natural resources but may choose instead not to rely on their exports for growth (Ding and Field, 2005). Reliance on primary exports may hinder growth due to the volatile prices natural resources are prone to. Consequently countries which rely heavily on natural resources for income may not be guaranteed an income and be adversely affected by supply shocks.

Despite the work of many economists highlighting the significant impact of geography on economic development others argue there are perhaps more fundamental causes of disparities in development. For example many countries are resource rich yet have low levels of development and others such as Singapore which is resource poor and resides in the tropics has high levels of income and development. The main opposing argument is that institutions are the main fundamental cause of development differentials and were particularly crucial at the early stages of development (Todaro and Smith, 2009). Institutions are critical in that they help establish political stability, property rights and restrict fraudulent or anticompetitive behaviour as well as promoting diplomacy and promoting equality rather than power being exclusively for the rich (Todaro and Smith, 2009).

Acemoglu (2003) analyses how countries have developed since colonization. He finds that in fact countries with amongst the richest societies in the 1500s such as the Aztecs and Incas of South America are in fact some of the poorest today. He calls this a reversal of fortune. He comes to the conclusion that the changing of institutions in these countries that came with the arrival of the Europeans greatly changed their destiny. Canada and America which saw their institutions greatly improved experienced radical growth and development whilst colonies which saw harsh conditions and slavery witnessed a decline in relative development in comparison to other nations (Acemoglu, 2003). Using North and South Korea as an example due to their near identical geography, Acemoglu (2004) states that differences in institutions are the principal cause for income and development differentials.

It is clear that there is a substantial relationship between geographical factors and economic development but whether it the root of causation is a different matter. it is difficult to estimate precisely the importance of geography. Clearly other factors must be taken into account such as health, education, sanitary conditions and institutions to truly explain development outcomes. Despite much research on the geography- institutions debate many economists and econometricians still have conflicting views on the matter. Evidently there is need for more research to truly uncover which factors are the most fundamental determinants of development. I am of the personal opinion that given the extent of the statistical significance of geographical variables in various models, geography is a key determinant of development outcomes.