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Welcome, everyone.

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Today we are going to begin a new unit.

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We are going to be talking about[br]geography and development.

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And by geography, I mean the relatively[br]immutable and constant features,

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things like location, topography, climate,

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including temperature,[br]rainfall, soil quality,

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wildlife, especially parasites,

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and the influence of all of these [br]on development.

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This is obviously a big topic,

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so today we are just going to focus on[br]geography and trade.

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So I want to begin by [br]giving two perspectives on trade.

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The first is the Ricardian perspective.

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So Ricardo said, when 2 countries[br]specialize in their comparative advantage,

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that is, they specialize in[br]producing the good,

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which they can produce[br]at lowest opportunity cost,

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and then they trade,

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both nations are better off.

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Now, notice that innovation [br]is not the focus of Ricardo.

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So Ricardo says, "There already are[br]two goods, wine and cloth.

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We can get more of both goods[br]if Portugal specializes in producing wine,

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England specializes in producing cloth,[br]and then they trade."

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So for Ricardo,

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trade is about improvements[br]in static efficiency.

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Notice also that in Ricardo, [br]market size is really not a key variable.

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The situation is very different[br]in Adam Smith.

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Adam Smith has a [br]completely different theory of trade.

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Let's take a look at that.

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Smith lays out his theory of trade [br]in a chapter in the Wealth of Nations

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called <i>The division of labor is limited [br]by the extent of the market</i>.

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And Smith makes this remarkable[br]and very deep insight.

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He says, "As by means of water-carriage,"[br]that is by ship and boat,

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"a more extensive market is opened [br]to every sort of industry

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than what land-carriage alone [br]can afford it.

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So it is upon the sea-coast,[br]and along the banks of navigable rivers,

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that industry of every kind

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naturally begins [br]to subdivide and improve."

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So what Adam Smith is saying is that[br]when you're along in sea coast

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you have access to a larger market.

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You can sell your goods[br]in a larger market.

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And because of that, --

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you get economies of scale but, also,[br]you get specialization of knowledge.

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You get people learning more as[br]they produce more.

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This creates improvements.

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So for Adam Smith, [br]trade is a dynamic growth story.

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Trade, means larger markets.

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Larger markets means more specialization.

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It means more improvements in knowledge, [br]and therefore it means more growth.

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So let's take a look at [br]Adam Smith's theory

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and see if we can see it today.

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So what we have here is [br]a map of GDP density,

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that is, the amount of GDP [br]produced per square kilometer.

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And what you can see from this map [br]is that Smith was absolutely correct.

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So what you can see is that[br]where GDP is, where civilization is,

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it's along the coast.

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Here's the coastal United States

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and, along these navigable rivers, [br]the Great Lakes region.

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You can also see Western Europe,[br]all along the coast,

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all of this coastal area, [br]Western Europe, highly developed.

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Over here, Japan,

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and, of course, it's the coast of China

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which is rapidly developing[br]all due to those export markets.

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Here again, the coast of Australia.

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Now, in fact, what you can also see

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is that even in places[br]where there are great institutions,

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where they have [br]institutions of law and order,

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property rights, and incentives,[br]and so forth,

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that we can still have low GDP [br]per square kilometer.

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So take a look at Canada.

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So most of Canada, [br]it's like the Sahara Desert, --

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in terms of GDP.

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Canada, where Canada is developed,

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it's along the coast and [br]along navigable rivers

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close to the United States.

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Even in the United States,

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there are entire regions [br]which really are bereft of GDP

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which are almost as barren [br]as is the Sahara Desert.

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So if you are looking [br]just at institutions,

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you might say, [br]"Well, even in the United States,

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where we have these[br]great institutions,

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there's plenty of places [br]where there isn't much GDP,

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so it must be something else,

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and geography, --

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particular closeness to rivers[br]and closeness to sea coast

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is an important element of this.

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By the way, economists really [br]used to ignore geography.

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And it's due to Jeff Sachs [br]and some of his co-authors,

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particular John Gallup [br]and Andrew Mellinger

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that a lot of this work [br]started to be done.

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In addition to the article[br]which I've noted here, --

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these three authors have a review article [br]in Scientific American, 2001,

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called <i>The Geography of[br]Poverty and Wealth</i>,

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which I recommend.

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Now, if being close to rivers,

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if being close to the sea coast [br]is important

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then what is the worst thing?

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Well, the worst thing that can happen[br]is if you are landlocked.

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Let's take a look.

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So what we're showing here[br]is GDP per capita in countries

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which have access to the coast over here,

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compared to countries [br]that are landlocked over here.

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And what you see immediately [br]is that countries which are landlocked

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have half, actually, [br]a little bit less

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than half the GDP of countries [br]which have access to the coast.

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If we look over here,[br]at the landlocked countries,

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you can see there's actually[br]a few landlocked ones in Europe:

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Austria, Czech Republic, Hungary,[br]of course, Switzerland.

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But, equally true, these countries [br]are actually quite close to the coast

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and they are close[br]to other rich countries.

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If you take those countries out,[br]the differences become even more stark.

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Among the landlocked nations,

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the richest outside of Europe[br]is actually Botswana,

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which has diamonds.

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Pretty lucky for them.

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What you also notice is that [br]all of these countries here,

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they are all in Africa.

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In fact, Africa has more[br]landlocked countries

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than any other continent.

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Let's take a close look[br]at why this is the case.

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Okay, here is a standard-looking[br]map of the world

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you probably all seen it before.

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It's not obvious from this map [br]why Africa should be

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particularly landlocked.

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But there's also something funny[br]about this map, something odd.

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Take a look at Greenland.

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Greenland on this map looks huge,

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it looks almost as big as Africa.

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And, yet, when you check the statistics,

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what you find is that Greenland is, [br]in fact, 1/11 the size of Africa.

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What's going on?

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Well, this is actually an illusion.

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It's an illusion created by [br]the particular projection we've used,

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the Mercator projection, --

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to project a 3D surface, [br]namely a globe, onto 2 dimensions.

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Whenever you take a 3D surface[br]and you map it in 2 dimensions,

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you are bound to get some illusions.

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And in this case, [br]we get the illusion of size.

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Let's take a look at [br]a different projection.

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This is the Albers Projection,

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which maintains equal sizes areas.

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We are going to get some illusions [br]about the shape of continents,

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but we are going to get [br]the right equivalent sizes.

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And on this projection [br]what you see, quite correctly,

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is that Greenland [br]is much smaller than Africa.

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What you also see is that Africa is huge.

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Africa is an enormous continent.

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Let's also show that in a different way.

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Okay, here's another way [br]of looking at Africa

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and what you can see,[br]again, Africa is big.

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You can fit the entire United States,[br]excluding Alaska, into Africa.

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You can put China as well into Africa.[br]India can go into Africa.

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Eastern Europe, most of Europe;

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here's Italy, Germany, France,[br]and Spain, and so forth.

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Now, remember that chunk[br]in the United States,

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which is inland, [br]which had low GDP,

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well, just map that into Africa.

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You can see what is going on.

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Here's another way of looking at this.

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Let's go back to our projection.

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Take a look at the coastline of Africa.

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Here's the coastline of Africa.

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Now compare with the coastline of Europe.

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Well, in Europe you've got [br]all these nooks and crannies

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and inlets and seas.

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Here's the Black Sea[br]over here and so forth.

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In fact, what you'll find if you do this,[br]if you measure the coastline,

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is that the coastline of Europe,[br]is 2-3 times longer

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than the coastline of Africa.

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2-3 times, by the way,

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because it can actually differ [br]depending upon

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how you measure those fjords[br]and so forth in Europe.

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The fractal nature of coastline makes it[br]a little bit arbitrary to measure.

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Basic point however is,

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Europe is much smaller than Africa,

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and, yet, the coastline of Europe,

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the access to the ocean,[br]access to the seas,

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to navigable rivers, [br]much much larger.

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So Europe has much more access to trade

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than does Africa.

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So let's review briefly.

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From Adam Smith, we have that[br]sea coast and navigable rivers,

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that leads to trade to larger markets.

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Larger markets that means[br]more specialization

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and improvements in knowledge,

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and improvements in [br]knowledge lead to growth.

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In contrast with this, [br]if you are landlocked,

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you don't get those trade,[br]you don't get trade,

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you don't get larger markets[br]you don't get that specialization,

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you don't get [br]that improvement in knowledge,

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and, instead, you get stagnation.

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Now, again, let's apply this to Africa.

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Adam Smith in fact had the theory[br]and application done in 1776.

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He says, "There are in Africa[br]none of those great inlets,

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such as the Baltic[br]and Adriatic seas in Europe,

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the Mediterranean and the Black Sea [br]in both Europe and Asia [...]

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to carry maritime commerce into[br]the interior parts of that great continent:

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and the great rivers of Africa [br]are at too great a distance from one another

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to give occasion to [br]any considerable inland navigation."

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So Adam Smith nailed in 1776[br]one of the key connections

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between geography,

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between access to the coast,[br]access to navigable rivers,

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and development.

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Amazingly, it wasn't until [br]some 200 or so years later

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that Jeff Sachs and others [br]really began to pick this up

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and bring it back into the growth story.

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One reason to remember [br]our history of economic thought.

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Okay, we'll be looking more[br]at development and geography,

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in particular malaria and other parasites[br]and things like that,

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and their influences in the next lecture.

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Thanks.