The Economics of Global Geography
The first impression when considering the global distribution of economic activity is the clear correlation between geography and economic development. Geography forms the very foundations upon which economic growth can occur.
Yet, the role of geography remains woefully under-analysed in economic development. In fact, in the 263 pages of my macroeconomic textbook, 6 words were dedicated to geographical impacts on economic growth! This article seeks to bring to light the often forgotten importance of geography and it’s implications for economic development.
What do we mean by Economic Geography?
Economic Geography provides an understanding of the processes and drivers that help shape and affect the economic and cultural landscapes. It covers a wide-reaching and diverse range of factors such as climate, proximity to water, natural resources, and geopolitical significance.
Trends
“The land on which we live has always shaped us. It has shaped the wars, the power, politics and social development of the peoples that now inhabit nearly every part of the Earth”
© Tim Marshall In “Prisoners of Geography”
The correlation between geographic development and economic growth is obvious. At first glance, we can observe two main points.
- Nearly all of today’s poor countries are either landlocked or located close to the equator.
Many economists are quick to attribute these hardships to factors such as the climate and geography. However, this leads us to the critical question: Are country’s with poor geographical location destined to remain stuck in the economic slow-lane?
Proximity to The Equator
As reflected in the graph, the further away from the equator a country is, the higher the GDP per capita. One of the main reasons for this link is the effect of climate. The temperature, wind and precipitation levels are all decided by the climate. We can see that tropical and sub-tropical regions are generally poor such as Zimbabwe, Niger and Congo. If we move to temperate regions, GDP per capita is much higher such as Norway, Unites States and Luxembourg.
Climate is essential for the productivity of agriculture. Studies carried out by Weil in 2012 (p. 444) found that as of 2009, agricultural output could be up to 300 times higher in temperate regions than in tropical countries, despite larger farming areas in many of these poor regions.
Furthermore, close proximity to the equator leads to poorer air, soil and water quality which can be a catalyst for the rampant spread of disease. The correlation between health and GDP per capita is strong. Simply put, healthy people are more efficient, contribute to the economy and reduce the pressure on the government health system.
The impacts of being landlocked
In 2015, a third of the countries that were ranked by the Human Development Index as having low human development were landlocked. The lack of access to the sea is a major obstacle to development.
“Landlocked developing countries thus pay a high price for not having a sea port of their own. Their trade depends on ports of other countries. The worse transport links are, the higher the transaction costs rise. Moreover, many transit countries impose fees and road tolls that raise costs even further”
© (Snow et al., 2003)
Case Study 1: Africa
An often misunderstood topic is that the main reason for decades of slow growth in African economies is the sheer number of geographical handicaps. It’s proximity to the equator has resulted in the rampant spread of diseases. By much of the continent being landlocked, It has failed to integrate into the global economy, and with an abundance of natural resources, it has sparked the rise of conflict and corruption.
However, it is important to remember that only 50 years ago, economies across Africa such as Egypt, Nigeria and Algeria were all expanding at a respectable rate. (Comparable to the Western economies during their industrial revolutions between 1820 and 1913). Going back even further into history, Africa was one of the most prosperous regions across the globe.
The fact that Africa grew at a significant rate before the 1970s, suggests that the geographical barriers cannot be the only explanation in it’s economic slow-down.
Case Study 2: China
In contrast to Africa, China’s geography has been fundamental in shaping it’s five thousand years of economic history. China is a major global power, because of it’s size, climate and location.
From a geographical viewpoint, China’s underlying geology had a great wealth of natural resources, vast reserves of untapped coal, oil and natural gas, which were used to fuel the phenomenal modern industrial expansion of the country. Furthermore, China’s climate in the north is temperate, ideal for farming and agriculture, which helped feed the vast population. Whilst in the south, it is subtropical with very hot summers and mild winters.
From a geo-political stance, China’s location is of significant with close proximity to many large consumer markets in South East Asia, such as South Korea, Taiwan, Japan and Hong Kong. It’s Eastern seaboard affording easy shipping routes to access the rest of the world. These coastal regions were where China first saw the largest economic prosperity such as Hong Kong, Shanghai, Guangdong, Shenzhen and Hangzhou. The disparity between the prosperous East Coast and lagging western regions led Chinese President Xi Jinping to launch the ambitious $4–8bn US dollar ‘Belt and Road’ initiative. A mega infrastructure project engineered to connect the West of China and the rest of the world. The goal to reinforce China’s globe-spanning economic influence as an importer, exporter, and investor.
“It is important to remember that geographic advantages of one region to another vary over time with changes in technology sand the global patterns of human settlement.”
© Jeffrey D. Sachs. (1997). Geography and Economic Development: Some Empirical Findings. Page 6
Before the technological advancements in oceanic navigation, China was relatively isolated from the global economy. China’s location has helped develop it’s geo-political success and significance today.
Conclusion
The complex role of geography varies from region to region, though clear trends do apply. As we’ve discovered poor geography often equates to poor economic growth potential.
Going forward the most significant concern for nations suffering with poor geographical factors is the challenge presented by climate change. The impact of future disrupted weather patterns, extreme natural disasters and deteriorating agricultural productivity are likely to be severest among developing nations already struggling to kick start their economies.
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Adam Portch
