Geography and Growth
In recent years several scholars have revived the idea that geography has an
important influence on economic performance. There have been two strands
in this literature. The first, represented by the work of economists such as
Paul Krugman, Anthony Venables and Michael Porter, highlights the role of
increasing returns, agglomeration, size, clusters and location in the productivity
performance of nations and regions (see Krugman, 1991a, 1991b, 1997;
Krugman and Venables, 1995; Martin, 1999; Crafts and Venables, 2002;
Porter, 2003; Yang, 2003). With intellectual roots in the work of Alwyn
Young, Gunnar Myrdal and Nicholas Kaldor, the ‘new economic geography’
models highlight the impact of cumulative causation effects whereby success
breeds success. In these models globalization can initiate cumulative processes
that lead to the persistence of uneven spatial (urban, regional, and
international) development. As Crafts and Venables (2002) point out, in a
world dominated by increasing returns, cumulative causation, agglomerations
effects and path dependency, the prospects that increasing international integration
will lead to convergence are much less certain.
A second strand in the literature emphasizes the direct impact that geography
can have through climate, natural resources and topography. Such factors
obviously influence the health of a population, agricultural productivity, the
economic structure of an economy, transport costs and the diffusion of information
and knowledge. Geography, it is argued, plays an important role in
determining the level and growth of income per capita (see Diamond, 1997;
Bloom and Sachs, 1998; Gallup et al., 1998; Bloom et al., 2003). For a
critique of this literature see Acemoglu et al., 2001, 2002a).
An important stimulus to the revival of interest in the impact of geography
on economic performance comes from the increasing recognition that income
per capita and latitude are closely related. Countries nearer to the equator,
with a few exceptions (such as Singapore), have lower income per capita and
HDI scores than countries located in more temperate zones. The strong
negative empirical association between living standards and proximity to the
tropical latitudes is strongly influenced by the ‘dismal growth performance of
the African continent’ which has produced the ‘worst economic disaster of
the twentieth century’ (Artadi and Sala-i-Martin, 2003; see also Easterly and
Levine, 1997; Collier and Gunning, 1999a, 1999b; Herbst, 2000). What accounts
for the extraordinarily poor economic performance of sub-Saharan
African economies during the second half of the twentieth century, particularly
since decolonization?
Bloom and Sachs (1998) have argued that six sets of factors have featured
in various accounts of the poor economic performance of sub-Saharan African
economies, namely explanations based on:
1. unfavourable external factors related to colonial and cold war legacies;
2. volatility in primary exports terms of trade;
3. internal politics conducive to authoritarianism and corruption;
4. dirigiste economic policies emphasizing import substitution and fiscal
profligacy;
5. demographic trends involving rapid population growth and a ‘stalled
demographic transition’; and
6. ethnic diversity and low levels of social capital (trust).
However, in addition to these factors, which have all played some role,
Bloom and Sachs believe that economists ought to ‘lift their gaze above
macroeconomic policies and market liberalisation’ and recognize the constraining
influence on sub-Saharan Africa development of its ‘extraordinarily
disadvantageous geography’. By having the highest proportion of land area
(93 per cent) and population (659 million, in 2000) of all the world’s tropical
regions, sub-Saharan Africa, by virtue of its climate, soils, topography and
disease ecology, suffers from low agricultural productivity, poor integration
with the international economy and poor health and high disease burdens
now boosted with the onset of an AIDS epidemic. According to the World
Bank Development Report (2002), sub-Saharan Africa has the lowest per
capita income of all the major regions of the world ($480, and PPP$1560). In
1999 sub-Saharan Africa’s life expectancy of 47 years was also the lowest,
and sub-Saharan Africa’s under-5 mortality rate of 159 per 1000 births the
highest, in the world. Certainly, the evidence supports a positive link between
the health of nations and their ability to accumulate wealth (Bloom et al.,
2004).
The influence of geographical factors on economic growth and development
was not lost on Adam Smith (1776), who recognized that success in
trade was greatly enhanced by having easy access to water transportation.
it is upon the sea-coast, and along the river banks of navigable rivers, that industry
of every kind naturally begins to subdivide and improve itself … All the inland
parts of Africa, and all that part of Asia which lies any considerable way north of
the Black and Caspian seas … seem in all ages of the world to have been in the
same barbarous and uncivilised state in which we find them at present.
Recently, Rappaport and Sachs (2003) have shown that economic activity in
the USA is overwhelmingly concentrated along or near its ocean and Great
Lakes coastal regions. As Adam Smith recognized, proximity to coastal regions
greatly enhances productivity performance and the quality of life.
Whilst not arguing a new case of geographical determinism, and also
recognizing the crucial role played by economic policies, Bloom and Sachs
believe that ‘good policies must be tailored to geographical realities’. They
conclude that Africa will be well served if economists take advantage in their
research of ‘much greater cross-fertilisation’ from the accumulated knowledge
in other fields such as demography, epidemiology, agronomy, ecology
and geography. Thus an important divide in the world does exist, but it is not
between North and South; rather it is between countries located in temperate
latitudes compared to those in the tropics (see also Sachs and Warner, 1997;
Diamond, 1997; Hall and Jones, 1999; Landes, 1990, 1998; Sachs, 2003).
Finally in this section we draw attention to the recent research on the ‘natural
resource curse’, that is, the tendency of some countries that possess abundant
natural resources to grow more slowly than natural resource-poor countries.
While democracies such as the USA, Canada and Norway tend to manage oil
and other natural resources well, this is far from the case in countries governed
by predatory kleptocratic autocrats where the presence of ‘black gold’ stimulates
rent-seeking behaviour, political instability and, in the extreme, civil war
(see Sachs and Warner, 2001; Eifert et al., 2003). As Sala-i-Martin and
Subramanian (2003) document, ‘Nigeria has been a disastrous development
experience’ despite having large oil resources. Successive corrupt military
dictatorships have simply plundered the oil revenues. In contrast to Nigeria, the
experience of Botswana, with its lucrative diamond resources, has been completely
different. The economic success of Botswana is mainly due to the
quality of its governance and institutions (see Acemoglu et al., 2003).
In recent years several scholars have revived the idea that geography has an
important influence on economic performance. There have been two strands
in this literature. The first, represented by the work of economists such as
Paul Krugman, Anthony Venables and Michael Porter, highlights the role of
increasing returns, agglomeration, size, clusters and location in the productivity
performance of nations and regions (see Krugman, 1991a, 1991b, 1997;
Krugman and Venables, 1995; Martin, 1999; Crafts and Venables, 2002;
Porter, 2003; Yang, 2003). With intellectual roots in the work of Alwyn
Young, Gunnar Myrdal and Nicholas Kaldor, the ‘new economic geography’
models highlight the impact of cumulative causation effects whereby success
breeds success. In these models globalization can initiate cumulative processes
that lead to the persistence of uneven spatial (urban, regional, and
international) development. As Crafts and Venables (2002) point out, in a
world dominated by increasing returns, cumulative causation, agglomerations
effects and path dependency, the prospects that increasing international integration
will lead to convergence are much less certain.
A second strand in the literature emphasizes the direct impact that geography
can have through climate, natural resources and topography. Such factors
obviously influence the health of a population, agricultural productivity, the
economic structure of an economy, transport costs and the diffusion of information
and knowledge. Geography, it is argued, plays an important role in
determining the level and growth of income per capita (see Diamond, 1997;
Bloom and Sachs, 1998; Gallup et al., 1998; Bloom et al., 2003). For a
critique of this literature see Acemoglu et al., 2001, 2002a).
An important stimulus to the revival of interest in the impact of geography
on economic performance comes from the increasing recognition that income
per capita and latitude are closely related. Countries nearer to the equator,
with a few exceptions (such as Singapore), have lower income per capita and
HDI scores than countries located in more temperate zones. The strong
negative empirical association between living standards and proximity to the
tropical latitudes is strongly influenced by the ‘dismal growth performance of
the African continent’ which has produced the ‘worst economic disaster of
the twentieth century’ (Artadi and Sala-i-Martin, 2003; see also Easterly and
Levine, 1997; Collier and Gunning, 1999a, 1999b; Herbst, 2000). What accounts
for the extraordinarily poor economic performance of sub-Saharan
African economies during the second half of the twentieth century, particularly
since decolonization?
Bloom and Sachs (1998) have argued that six sets of factors have featured
in various accounts of the poor economic performance of sub-Saharan African
economies, namely explanations based on:
1. unfavourable external factors related to colonial and cold war legacies;
2. volatility in primary exports terms of trade;
3. internal politics conducive to authoritarianism and corruption;
4. dirigiste economic policies emphasizing import substitution and fiscal
profligacy;
5. demographic trends involving rapid population growth and a ‘stalled
demographic transition’; and
6. ethnic diversity and low levels of social capital (trust).
However, in addition to these factors, which have all played some role,
Bloom and Sachs believe that economists ought to ‘lift their gaze above
macroeconomic policies and market liberalisation’ and recognize the constraining
influence on sub-Saharan Africa development of its ‘extraordinarily
disadvantageous geography’. By having the highest proportion of land area
(93 per cent) and population (659 million, in 2000) of all the world’s tropical
regions, sub-Saharan Africa, by virtue of its climate, soils, topography and
disease ecology, suffers from low agricultural productivity, poor integration
with the international economy and poor health and high disease burdens
now boosted with the onset of an AIDS epidemic. According to the World
Bank Development Report (2002), sub-Saharan Africa has the lowest per
capita income of all the major regions of the world ($480, and PPP$1560). In
1999 sub-Saharan Africa’s life expectancy of 47 years was also the lowest,
and sub-Saharan Africa’s under-5 mortality rate of 159 per 1000 births the
highest, in the world. Certainly, the evidence supports a positive link between
the health of nations and their ability to accumulate wealth (Bloom et al.,
2004).
The influence of geographical factors on economic growth and development
was not lost on Adam Smith (1776), who recognized that success in
trade was greatly enhanced by having easy access to water transportation.
it is upon the sea-coast, and along the river banks of navigable rivers, that industry
of every kind naturally begins to subdivide and improve itself … All the inland
parts of Africa, and all that part of Asia which lies any considerable way north of
the Black and Caspian seas … seem in all ages of the world to have been in the
same barbarous and uncivilised state in which we find them at present.
Recently, Rappaport and Sachs (2003) have shown that economic activity in
the USA is overwhelmingly concentrated along or near its ocean and Great
Lakes coastal regions. As Adam Smith recognized, proximity to coastal regions
greatly enhances productivity performance and the quality of life.
Whilst not arguing a new case of geographical determinism, and also
recognizing the crucial role played by economic policies, Bloom and Sachs
believe that ‘good policies must be tailored to geographical realities’. They
conclude that Africa will be well served if economists take advantage in their
research of ‘much greater cross-fertilisation’ from the accumulated knowledge
in other fields such as demography, epidemiology, agronomy, ecology
and geography. Thus an important divide in the world does exist, but it is not
between North and South; rather it is between countries located in temperate
latitudes compared to those in the tropics (see also Sachs and Warner, 1997;
Diamond, 1997; Hall and Jones, 1999; Landes, 1990, 1998; Sachs, 2003).
Finally in this section we draw attention to the recent research on the ‘natural
resource curse’, that is, the tendency of some countries that possess abundant
natural resources to grow more slowly than natural resource-poor countries.
While democracies such as the USA, Canada and Norway tend to manage oil
and other natural resources well, this is far from the case in countries governed
by predatory kleptocratic autocrats where the presence of ‘black gold’ stimulates
rent-seeking behaviour, political instability and, in the extreme, civil war
(see Sachs and Warner, 2001; Eifert et al., 2003). As Sala-i-Martin and
Subramanian (2003) document, ‘Nigeria has been a disastrous development
experience’ despite having large oil resources. Successive corrupt military
dictatorships have simply plundered the oil revenues. In contrast to Nigeria, the
experience of Botswana, with its lucrative diamond resources, has been completely
different. The economic success of Botswana is mainly due to the
quality of its governance and institutions (see Acemoglu et al., 2003).
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