Geography has played an important role in the differences between countries economic success and development. Some countries experienced more stable and long term growth that made them the most economically successful to present day and the path that links this growth to geographical factors can be easily followed. Direct links can be found between productivity and institutions, mortality rates and institutions, factor endowments and income equality, and distance and market access that leads to discussion on how much geography mattered.
Diseases such as Malaria played an important role in the institutions that were implemented by settlers, mortality rates of countries being colonised greatly affected settler strategy in deciding the early settlements that were the basis of the institutions currently in place. “High mortality rates in the early 19th Century led European powers to develop predatory political institutions rather than developmental institutions”. Rather than solving problems within the colonised countries through developmental institutions under the rule of law, which would have restricted the arbitrary exercise of power, an exploitive colonial rule was often implemented. “Colonies where Europeans faced higher mortality rates are today substantially poorer than colonies that were healthy for Europeans”. As the tropical climates of these countries meant that certain diseases thrived, the location of a country was crucial to its economic advancement and development; in Acemoglu, Johnson and Robinsons [2001] article it is rightly emphasized that the mortality rate of the settlers was indicative of the early settlements, these settlements were the determinants of early institutions and there is a strong correlation between early and current institutions, and therefore a strong correlation between regions with 'high-mortality rates in the early 19th Century and regions with a poor state of economic development toward the end of the 20th Century'. A perfect example of this difference is the settler colonies in temperate USA and Canada and the extractive and plantation colonies in the tropical (therefore with a higher disease occurrence) Caribbean.
The institutions that were, or were not, implemented by colonisers played key roles in the economic environment and long-term development of the country. “Differences in capital accumulation, productivity, and therefore output per worker are driven by differences in institutions and government policies, which we call social infrastructure”. The social infrastructure within a country is key to its economic success and its rate of economic growth as they effect the countries capital accumulation, attainment of education and therefore the productivity by providing incentives for the individuals. In relation to my last point the degree of adoption of social infrastructure is related to the extent to which the country had been influenced by Western Europe, “the first region in the world to implement broadly social infrastructure favourable to production”, the reason that Western Europe was the first is that it was the first region to discover and utilise the importance of property rights and other modern economic theories set out by Adam Smith in Wealth of Nations [1976]– the countries that were influenced greatest by Western Europe were so because they were where the majority migrated to. These were the regions with the most temperate climates and therefore the lowest mortality rates due to disease and this in turn gave a greater incentive for more people to migrate to them.
Hall and Jones [1999] correlates distance from the equator with economic success, as does Engerman and Sokoloff [2002] using the reverse statement “per capita income of countries near the equator were lagging far behind that of their neighbours at more moderate latitudes”.This shows the impact of geography on early economic growth and development which laid the foundations of the countries social infrastructure and potential for future growth.
Distance and location are two of the most important geographical components that affect the economic success of a country in terms of per capita income and GDP. “We find that our market access and supplier access measures are important determinants of income”, as discussed in this paper the access to markets is an important factor of the income of a firm and its workers. Redding and Venables [2003] state that if a market cuts the distance in half from a trading partner the per capita income will increase by 25% and if the market has coastal access per capita income will increase by over 20%. This clearly shows that geography matters with cross-country trade and therefore contributes to economic success; “transport costs or other barriers to trade mean that more distant countries suffer a market access penalty on their sales and also face additional costs on imported inputs”. These transport costs discussed here cause trade to become more expensive and the average cost to firms to increase meaning that they are forced to pay lower wages, this also has the same effect on the countries that are distant from sources of supply i.e the supplier market. This view is also discussed by Linders [2005], who goes on to say that “despite technological improvements in transport and ICT, we observe an almost immutable effect of physical distance” and that the “influence of distance does not appear to have diminished over time”. Resistance to trade and increased cost of trade due to location and distance show how important how important they were even when the rate of technological advancement has increased so rapidly.
In 1910, the average distance between the 15 Northwestern European cities with a population of over half a million was 500km and was 762km between the US cities of the same population. This meant that there was a large consumer market in Europe to be captured without the problem of long distance. The large European firms such as Thomas Cook and Nobel Dynamite had large factor flows already throughout Europe so the proximity of markets ensured the economic success of Western Europe and also helped America, which was also helped by its abundant natural resources.
Factor endowments were an important aspect to economic growth and success of a country, the “economic structures that evolved in this second group of colonies were greatly influenced by the factor endowments” as Engerman and Sokoloff [2002] go on to say the wealth of mineral resources and the abundance of human capital in the New World was a contributing factor to the “unequal distributions of wealth and income”, the impact of this inequality can be seen in long run lower educational attainment, poorer health of labour and a mistrust of government and exploitative nature of the settlers which all leads to lower productivity and a lack of stable institutions. This inequality was also seen in the colonial plantation economies which were selected due to their benefit from good soil and longer seasons which were exploited through the use of slave labour. Another factor endowment that influenced development was the absence of gold and silver mines, these countries had less importance placed on them by the colonial Spanish and they “were forced to deal with policies that had been framed to support the colonies with mines” this meant that the countries without mines had wrongly suited policies with trade and transport that inevitably held back economic development.
In conclusion, geographical factors show a strong correlation with the economic success between countries as they first led to the establishment of predatory or developmental institutions during colonisation of Americas and the Caribbean, geography also supplied factor endowments from which resources for industry are taken from. Location and distance of a country led to cheaper or more expensive transport costs due to ease of cross land and water transport which reduced income per capita, all of these effects lead to one conclusion that geography played a key role in the economic success and development of a country and really did matter.
Thanks for reading.
Hayekleon 2014.
Bibliography
John McArthur and Jeffrey Sachs, Institutions and Geography: Comment on Acemoglu, Johnson and Robinson (NBER Working Paper 2001)
Daren Acemoglu, Simon Johnson and James Robinson, The Colonial Origins of Comparitive Development: An Emperical Investiation, American Economic Review (American Economic Association 2001)
Robert Hall and Charles Jones, Why do some Countries Produce So Much More Output Per Worker Than Others? (Oxford University Press 1999)
Stanley Engerman and Kenneth Sokoloff, Factor Endowments, Inequality, And Paths of Development Among New World Economies (NBER Working Paper 2002)
Stephen Redding and Anthony Venables, Economic Geography and International Inequality (Elsevier B.V 2003)
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