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.
The video does not say geography is the only reason for development.
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.
To me GDP per capita intuitively seems to be a better measure than GDP density. For instance, the difference in GDP density between India and Africa is possibly much higher than the difference in GDP per capita due to the huge variation in population density. I am yet to actually check out these figures though.
While I think relying exclusively on boats would cause them to lag, don't under-estimate how effective water transportation is for a society. Even now, after the invention of the railroad and automobile, it's still by and far the cheapest way to send goods.
My takeaway from the discussion was that the waterways served as a natural focal point for commerce, thus drawing a lot of people to one area. This increased both the possibilities for trade within that area and for transportation to other, more distant markets. I think the two go hand-in-hand, rather than being opposing ideas.
I agree that all the other infrastructure you mentioned matters in today's world. But it matters in the same fundamental way that waterways mattered 500 years ago.
I have some work related to geography, economics, and development here http://philosophyofscience.webstarts.com/working_papers.html that some may find interesting or useful.
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?
I think that's why the lesson is so valuable, because it is counter-intuitive. If a landlocked country with good institutions exists, would it grow more than a country with equivalent institutions that had access to sea lanes? Certainly it is intuitive that it would not; the question is how much is the water access worth? And it turns out it's worth much more than one would expect without digging into the situation.
But perhaps there is a confounding variable. If a landlocked state in history had good institutions, it might have grown rich and strong and through conquest grabbed a route to the sea. Certainly the United States took a huge amount of coastline from Mexico, and Prussia from other German states.
I think that comparing Russia to Africa is useful here. Russia may only be half of Africa's size, but it is one country, which is what you're asking for. From the slide, it seems to be doing far better than Africa, even in the areas which are quite far inland. By contrast, Mongolia, which is landlocked, has a much lower GDP than the areas around it. This suggests to me that even the areas on Russia and China which are removed from water benefit from being part of a country which has access to water. The exceptions seem to be mountainous regions (Tibet) and the Siberian tundra.
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.
I'm not sure I agree. Of the 10 poorest states in the US by 2011 household income, 6 are landlocked (West Virginia, Arkansas, Kentucky, Tennessee, Oklahoma, and New Mexico, ). Two others have relatively small coastlines (Mississippi and Alabama) although one of these enjoys an inland, navigable river.
Texas actually has a rather large coast on the Gulf of Mexico. Oklahoma and Texas would be quite an interesting comparative study as both enjoy some of the same natural resources (oil), have a similar culture and history (primarily: participated on the same side of the Civil War).
Further, check the graph that showed GDP development per capita. Seemed fairly convincing.
Sorry about Texas. I should have checked the map first without guessing. (And now, who claims that Americans are bad at geography? :))
For example, in Germany, if you don't count the city states, the richest states do not have a coastline. http://www.statistik-bw.de/VolkswPreise/Indikatoren/VW_wirtschaftskraft.asp
It is important not to confuse inland counties with land-locked countries. Germany and France have plenty of navigable rivers, Loire, Garonne, Seine, Rhone, Rhine, Danube, Elbe, Oder etc.
Germany's richest and oldest cities are up and down the Rhine. Southern Germany has Rhine and Danube. Google maps shows most Bavarian cities are connected to the Danube.
The video clearly makes the point that Africa lacks coast line AND rivers.
Actually, Arkansas borders the Mississippi river, as does Tennessee. Even eastern Tennessee has access to the Mississippi through the Tennessee (with a brief stretch of the Ohio River in between). Kentucky borders the Ohio River and thus has navigable access to the Mississippi. West Virginia borders the Ohio too, but I'm not sure how navigable the Ohio is on their border.
One thing to consider is that the United States is basically one big free trade zone. If a landlocked nation cannot trade with its neighbors due to artificial trade barriers then they may have a lower GDP even if they have good institutions. Conversely, if a nation is landlocked but does not face artificial trade barriers then it has a higher chance of success.
Would imagine that being a landlocked province in a country with coastline is better than being a landlocked country because of lesser trade barriers to get to the sea / cheaper access to the coast.
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.
(1) http://en.wikipedia.org/wiki/File:USGS_world_oil_endowment.png
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?
Can "conquest and colonization" be seen as a form of trade? Coercive, unfair, and sometimes brutal trade. Trading, like you say, institutions/technology in exchange for raw materials, slave labor, etc.
Here I think the differences among the Spanish colonies would be illustrative. Being colonized by the same country works as a sort of control. Development has been much more effective in Mexico and Argentina, rather than in say Bolivia or Ecuador. Mexico and Argentina, with plentiful coastlines and friendly interior geography, have per capita incomes at $14k and $17k respectively. Ecuador and Bolivia only produce around $8k and $5k respectively It's hard to deny that being landlocked has hindered Bolivia, and the rough Andean terrain of Ecuador has made trade linkages difficult to come by.
Perhaps this overview from social anthropologist Alan Macfarlane (focusing on Great Britain) may be of help. http://fortnightlyreview.co.uk/2012/04/invention-2/
I think your theory falls down as far as England and Japan go - while England was invaded by the Romans, Angles & Saxons it was never really conquered or colonised by a sea-faring nation - the Vikings on the whole just plundered. And Japan to my knowledge was never conquered by a sea-faring nation either. Australia doesn't really count as it only became colonised by the British for the purposes of ridding itself of troublesome population due to socio-economic growth in the early industrial revolution and because, having lost it's American colonies it could not longer get rid of them there.
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?
I think road building would be more practical .. this Economist article a few years ago illustrates it pretty well - http://www.economist.com/node/1487583
Perhaps in the middle ages it would have helped. China benefited quite a bit from the Grand Canal.
Perhaps in the middle ages it would have helped. China benefited quite a bit from the Grand Canal.
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)?
Shipping oversea is still incredibly vital to global commerce.
In 2011, the US shipped roughly 22 million tons of freight (mail included) by air. http://www.transtats.bts.gov/freight.asp?pn=0&display=data2
US container ports handle that much freight in exports alone... every quarter! US container ports handle roughly 35 million tons of freight in imports every quarter.
Oversea shipping is still by far the dominant set of arteries of global trade. The price per unit of weight transported is much higher for planes than for ships, limiting even what would be possible for intra-national trade.
Sea transportation is still easily the cheapest way to transport goods and people en masse, far cheaper per pound than sending stuff by air, truck, or even rail. Air transport especially is expensive.
Absolutely. I know someone who spent some time living in a town in Alaska from which the only way to enter or exit was by plane. As a result, everything cost several times more than almost anywhere else in the US. Transport by air is only efficient in terms of time, when it comes to mass, sea transportation is slowest, but by far the cheapest.
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.
Sea transportation is still quite relevant, as the GDP Density map shows. It's still cheaper to send goods en masse by ship than by car, plane, or even rail, and that shows up in everything from patterns of industrialization in the US to the GDP Density map in the presentation.
I think that points up one odd thing about the lecture - it looked at "GDP density" - GDP per acre versus GDP per capita. The "low density" places in Africa are a lot more populated than the "low density" ones in Canada...
I don't think it's safe to say that trade occurs at higher levels where people live in higher concentrations, though, because the nature of what they're doing matters. A poor, land-locked, agricultural community might have a lot of people but do very little trading, because it's producing all it needs on site; or move to more trade by growing cash crops without changing its population at all. But a mining community in inhospitable country has got to live entirely by trade.