Geography and Development, Trade
Taxes can reduce trade but so can mountains! What do we learn about trade and growth by paying attention to geography? This video also contrasts the different theories of trade offered by David Ricardo and Adam Smith. Ricardo is in the textbooks but Adam Smith's arguments may be more important.
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I noticed the video and the theories postulated completely ignored the fact of Africa's colonization and slave trading which was occasioned by the quest for Africa's resources and slave trade. These would matter most than geography, and is in fact reinforced presently with the new scramble for Africa's resources by China, America, Europe, India etc. The picture also applies to the theory of GDP density and GDP per capita. Is Africa's relatively very high concentration of natural resources not congruent with the GDP density concept and even GDP per capita?
As for the issue of landlocked vs. coastal countries, the common denominator for both is infrastructure and technology. While developed coastal countries have invested in infrastructure and technology to leverage on waterways resources, developing coastal and landlocked countries are yet to make the vital investments on roads (highways, railways), airports, seaports where applicable.
Geography, therefore, cannot be conclusively said to explain growth and development significantly more than resources endowment, infrastructure and technology.
People have always settled near water because water serves basic life needs. Isn't it safe to assume that trade occurs at higher levels where people live in higher concentrations? Is it the access to water or the access to markets? Yes, waterways still play an important economic role, but so do railroads, highways, and air hubs. And, of course, two of the most famous and lucrative trade routes in history were landlocked: the Silk Road and Mansa Musa's trans-Saharan caravan routes. I think the key is not so much coastline as connecting markets with the best, most efficient transportation technology of your time. In Adam Smith's time, that was the boat, but I would bet that any societies that stuck with the boat and did not adopt the newer technologies of rail, road, and air would lag considerably.
I grew up in Derbyshire, and I learned at school that by building canals, the local coal mines and factories could connect to bigger marketplaces, and later on railways that could carry more goods more quickly, and that these were important to the region's growth success back in the day. So I agree that even inland communities can use technology to forge better trade links. I viewed the video as being about the natural advantage that could give a coastal town a growth headstart. Without that geographical advantage, a landlocked community must spend money to build road and rail networks to establish its trade links. Especially in Africa, I imagine the size of the continent makes this an expensive proposition.
Does it really matter that certain countries are landlocked? If all of Africa were one country would have a higher GDP? The broader point that trade venues + good institutions = growth, seems like the more valid point. If a landlocked country in Africa, say Niger, created good government institutions and developed a comparative advantage in e-commerce, would it matter that it was landlocked?
Max's point about tariffs is well taken, but we can go further. Countries tend to have fewer non-tariff trade barriers within the countries (i.e. standardized measurements, inspection codes, cultural/linguistic norms, etc). I think Smith's argument would proceed along these lines: all else being equal, Africa as a whole would have a larger economy than it does now, if it were one country. (Now of course Africa as one country would be a tremendously difficult thing to maintain, but let's set that aside). I'm sure Ethiopia would prefer to have it's own ports, rather than shipping through Djibouti or Eritrea. I think you could also look at the Bolivian experience after their defeat in the Pacific War as what happens to countries that BECAME landlocked after previously having sea access.
Well, 'mountains can reduce trade but so can taxes', and international tariffs certainly play a role in reducing trade. An alternative argument would be the one that Paul Collier in 'The Bottom Billion'. He gives evidence that land-locked countries with good infrastructure links to their coastal neighbours don't suffer as poorly as land-locked countries without such links. Perhaps the key is transport costs; having a comparative advantage is no use if it's negated by the costs of exporting your products. Your example of e-commerce doesn't greatly suffer from this problem, but it's an atypical good.
Yes, I have a hard time with this nationalistic approach to economics. Think about the landlocked states like Switzerland (was mentioned) or Texas and many other US states, French provinces, German states and so on (were not mentioned). Does it matter that they have no access to the sea? Nope.
If we did that chart again using sub-national regions, I think the argument would fall apart.
There is one major point missing in the video - most revenue generating natural resources tend to be located along sea coasts and in the surrounding continental shelves (1). There are other windfall profits arising from owning a sea coast, such as access to fishing grounds or ability to deal with other coastal regions without an intermediary. So yes, all else being equal, sea coast still matters.
Yes, I agree with Joseph Wilkinson II, it was odd to talk about 'GDP per square mile' rather than 'GDP per capita per square mile', it could be that the entire different e.g. in the US is simply the graph of population density, in which case the point you are making is simply that people prefer to live close to water.
Like any of these explanatory propositions in these initial videos, the point isn't unreasonable. It seems reasonable to say that people who live close the coast have access to shipping that lets them reach a wider market. You could then argue that England and the Netherlands had that advantage, which could be one reason why they were the first to industrialise in Europe, and that (as I believe is the case), that landlocked Switzerland was relatively poor until quite late in the day. But there are plenty of people living on coasts all around the world throughout history - I'd take culture over geography as an explanation for why industrialisation came first to Europe. Better make this a question. Isn't culture a better explanation than geography?
Actually, GDP Density is calculated by multiplying GDP per capita by the number of people per square kilometer. So it seems to be a valid measurement.
I think the GDP density chart made one important point: it shows independent of population where economic activity takes place. Inside the US there is much less of it, just like in Africa's interior.
Of course, Americans have the good sense not to live in these places and that is because there is no economy there. BUT, given a realistic choice, most Africans wouldn't choose to live where they live either. They are literally stuck in landlocked countries with high birth rates. That is the point the chart makes.
Kind of off topic, I particularly like the Greenland / Africa size comparison in this video. Do not have immediate access to a globe (3D), am wondering if it anyone remembers the former being less than eleventh the size of the latter.
Mercator projections are like placing a bulb inside a globe and projecting on a cylinder. Remember on the 2D map north pole is a full line same length as the equator. While in reality it's a point. Hence farther you are from equator, larger is the illusion
The correlation between coastline and GDP is pretty clear, but Adam Smith's story is more cloudy. Here's a different story that seems plausible as well: countries with large coastlines are more prone to be conquered or colonized by rich, seafaring nations, and therefor become rich themselves over time, by transfer of institutions, technology, and the mixing of culture. Examples: North America, England, Australia, Japan. Is there any way to separate the pure effects of geography from the effects of conquest and colonization?
I think the implication that trade and access to trade goods is the important consideration for this topic. The coastal areas are typically easy to trade with due to the inherent ability to use ships to cost effectively transport large quantities. I would add, though, that with the advent of efficient railroads, the cost to trade with the interior of landmasses becomes a viable means to transport goods and thus supports trade which should be very true for geographies that can easily support rail. I think the map of the US GDP exhibits this well, as you see much of the central plain states (Dakotas, Nebraska, Oklahoma, Iowa, etc) have substantially higher GDP density compared to the Rocky Mountain states though all are landlocked. Is this a correct interpretation?
Perhaps a bit far-fetched, but following this story, would it be more productive to undertake vast artificial river construction in Sub-Saharan Africa, rather than having the IMF and rich countries continually contributing foreign aid donations?
Smith's insight seems quite valid circa 1776, but for the last century air travel (and thus air commerce) has been available. Granted, it gets off to a slow start, is in large part militarized early on, highly regulated in the US until the 1970s, etc. But for all that, looking into the future, are the landlocked nations of Africa, easily accessible to air commerce, really as bad off in coming years as they were in Smith's time (holding all other institutions constant)?
I wonder to what extent the benefits of coastal access are holdover from a previous age when seaborne transit was more essential. While coastal access is still important for large scale goods transportation, but such transportation is decreasingly relevant to economic activity overall.