1 00:00:01,191 --> 00:00:02,272 Welcome, everyone. 2 00:00:02,272 --> 00:00:04,613 Today we are going to begin a new unit. 3 00:00:04,613 --> 00:00:07,449 We are going to be talking about geography and development. 4 00:00:07,743 --> 00:00:12,382 And by geography, I mean the relatively immutable and constant features, 5 00:00:12,382 --> 00:00:16,021 things like location, topography, climate, 6 00:00:16,231 --> 00:00:19,563 including temperature, rainfall, soil quality, 7 00:00:19,858 --> 00:00:22,446 wildlife, especially parasites, 8 00:00:22,536 --> 00:00:24,597 and the influence of all of these on development. 9 00:00:24,897 --> 00:00:26,450 This is obviously a big topic, 10 00:00:26,450 --> 00:00:30,595 so today we are just going to focus on geography and trade. 11 00:00:31,168 --> 00:00:34,119 So I want to begin by giving two perspectives on trade. 12 00:00:34,119 --> 00:00:36,758 The first is the Ricardian perspective. 13 00:00:37,001 --> 00:00:42,438 So Ricardo said, when 2 countries specialize in their comparative advantage, 14 00:00:42,722 --> 00:00:44,655 that is, they specialize in producing the good, 15 00:00:44,655 --> 00:00:47,885 which they can produce at lowest opportunity cost, 16 00:00:48,295 --> 00:00:49,405 and then they trade, 17 00:00:49,690 --> 00:00:51,062 both nations are better off. 18 00:00:51,611 --> 00:00:55,364 Now, notice that innovation is not the focus of Ricardo. 19 00:00:55,610 --> 00:00:59,391 So Ricardo says, "There already are two goods, wine and cloth. 20 00:00:59,498 --> 00:01:04,983 We can get more of both goods if Portugal specializes in producing wine, 21 00:01:04,983 --> 00:01:08,800 England specializes in producing cloth, and then they trade." 22 00:01:09,164 --> 00:01:10,590 So for Ricardo, 23 00:01:10,590 --> 00:01:14,124 trade is about improvements in static efficiency. 24 00:01:14,651 --> 00:01:19,970 Notice also that in Ricardo, market size is really not a key variable. 25 00:01:20,568 --> 00:01:23,785 The situation is very different in Adam Smith. 26 00:01:24,207 --> 00:01:27,471 Adam Smith has a completely different theory of trade. 27 00:01:27,790 --> 00:01:29,285 Let's take a look at that. 28 00:01:31,061 --> 00:01:35,105 Smith lays out his theory of trade in a chapter in the Wealth of Nations 29 00:01:35,265 --> 00:01:40,254 called The division of labor is limited by the extent of the market. 30 00:01:40,691 --> 00:01:44,091 And Smith makes this remarkable and very deep insight. 31 00:01:44,195 --> 00:01:48,442 He says, "As by means of water-carriage," that is by ship and boat, 32 00:01:48,768 --> 00:01:52,988 "a more extensive market is opened to every sort of industry 33 00:01:52,988 --> 00:01:55,624 than what land-carriage alone can afford it. 34 00:01:56,073 --> 00:02:00,633 So it is upon the sea-coast, and along the banks of navigable rivers, 35 00:02:00,633 --> 00:02:02,611 that industry of every kind 36 00:02:02,611 --> 00:02:06,681 naturally begins to subdivide and improve." 37 00:02:07,336 --> 00:02:11,930 So what Adam Smith is saying is that when you're along in sea coast 38 00:02:11,930 --> 00:02:14,046 you have access to a larger market. 39 00:02:14,046 --> 00:02:16,853 You can sell your goods in a larger market. 40 00:02:17,166 --> 00:02:18,573 And because of that, -- 41 00:02:19,181 --> 00:02:24,413 you get economies of scale but, also, you get specialization of knowledge. 42 00:02:24,695 --> 00:02:28,413 You get people learning more as they produce more. 43 00:02:28,413 --> 00:02:30,489 This creates improvements. 44 00:02:30,773 --> 00:02:35,049 So for Adam Smith, trade is a dynamic growth story. 45 00:02:35,191 --> 00:02:38,111 Trade, means larger markets. 46 00:02:38,662 --> 00:02:41,654 Larger markets means more specialization. 47 00:02:41,882 --> 00:02:47,031 It means more improvements in knowledge, and therefore it means more growth. 48 00:02:47,752 --> 00:02:50,421 So let's take a look at Adam Smith's theory 49 00:02:50,421 --> 00:02:52,165 and see if we can see it today. 50 00:02:53,263 --> 00:02:56,802 So what we have here is a map of GDP density, 51 00:02:57,069 --> 00:03:01,355 that is, the amount of GDP produced per square kilometer. 52 00:03:01,702 --> 00:03:05,296 And what you can see from this map is that Smith was absolutely correct. 53 00:03:05,581 --> 00:03:08,969 So what you can see is that where GDP is, where civilization is, 54 00:03:08,969 --> 00:03:10,351 it's along the coast. 55 00:03:10,351 --> 00:03:11,945 Here's the coastal United States 56 00:03:11,945 --> 00:03:15,362 and, along these navigable rivers, the Great Lakes region. 57 00:03:15,646 --> 00:03:20,159 You can also see Western Europe, all along the coast, 58 00:03:20,159 --> 00:03:22,985 all of this coastal area, Western Europe, highly developed. 59 00:03:23,306 --> 00:03:24,867 Over here, Japan, 60 00:03:24,867 --> 00:03:27,626 and, of course, it's the coast of China 61 00:03:27,626 --> 00:03:31,631 which is rapidly developing all due to those export markets. 62 00:03:31,796 --> 00:03:34,150 Here again, the coast of Australia. 63 00:03:34,958 --> 00:03:36,631 Now, in fact, what you can also see 64 00:03:36,631 --> 00:03:40,689 is that even in places where there are great institutions, 65 00:03:40,689 --> 00:03:42,951 where they have institutions of law and order, 66 00:03:43,189 --> 00:03:46,248 property rights, and incentives, and so forth, 67 00:03:46,248 --> 00:03:51,007 that we can still have low GDP per square kilometer. 68 00:03:51,007 --> 00:03:52,792 So take a look at Canada. 69 00:03:52,792 --> 00:03:56,518 So most of Canada, it's like the Sahara Desert, -- 70 00:03:56,768 --> 00:03:58,574 in terms of GDP. 71 00:03:59,143 --> 00:04:01,276 Canada, where Canada is developed, 72 00:04:01,276 --> 00:04:04,418 it's along the coast and along navigable rivers 73 00:04:04,418 --> 00:04:06,005 close to the United States. 74 00:04:06,310 --> 00:04:08,119 Even in the United States, 75 00:04:08,119 --> 00:04:11,584 there are entire regions which really are bereft of GDP 76 00:04:11,584 --> 00:04:16,330 which are almost as barren as is the Sahara Desert. 77 00:04:16,639 --> 00:04:19,188 So if you are looking just at institutions, 78 00:04:19,188 --> 00:04:21,681 you might say, "Well, even in the United States, 79 00:04:21,681 --> 00:04:23,515 where we have these great institutions, 80 00:04:23,515 --> 00:04:27,129 there's plenty of places where there isn't much GDP, 81 00:04:27,129 --> 00:04:28,577 so it must be something else, 82 00:04:28,795 --> 00:04:30,095 and geography, -- 83 00:04:30,746 --> 00:04:34,891 particular closeness to rivers and closeness to sea coast 84 00:04:35,020 --> 00:04:37,477 is an important element of this. 85 00:04:38,070 --> 00:04:42,347 By the way, economists really used to ignore geography. 86 00:04:42,651 --> 00:04:46,015 And it's due to Jeff Sachs and some of his co-authors, 87 00:04:46,015 --> 00:04:48,761 particular John Gallup and Andrew Mellinger 88 00:04:49,103 --> 00:04:51,261 that a lot of this work started to be done. 89 00:04:51,378 --> 00:04:53,804 In addition to the article which I've noted here, -- 90 00:04:54,364 --> 00:05:00,050 these three authors have a review article in Scientific American, 2001, 91 00:05:00,050 --> 00:05:02,359 called The Geography of Poverty and Wealth, 92 00:05:02,359 --> 00:05:03,490 which I recommend. 93 00:05:04,113 --> 00:05:07,180 Now, if being close to rivers, 94 00:05:07,180 --> 00:05:09,531 if being close to the sea coast is important 95 00:05:09,741 --> 00:05:11,240 then what is the worst thing? 96 00:05:11,593 --> 00:05:15,725 Well, the worst thing that can happen is if you are landlocked. 97 00:05:15,825 --> 00:05:16,740 Let's take a look. 98 00:05:19,897 --> 00:05:23,781 So what we're showing here is GDP per capita in countries 99 00:05:23,781 --> 00:05:26,761 which have access to the coast over here, 100 00:05:26,937 --> 00:05:29,961 compared to countries that are landlocked over here. 101 00:05:30,303 --> 00:05:34,103 And what you see immediately is that countries which are landlocked 102 00:05:34,403 --> 00:05:36,491 have half, actually, a little bit less 103 00:05:36,491 --> 00:05:41,386 than half the GDP of countries which have access to the coast. 104 00:05:41,911 --> 00:05:44,707 If we look over here, at the landlocked countries, 105 00:05:44,707 --> 00:05:48,200 you can see there's actually a few landlocked ones in Europe: 106 00:05:48,200 --> 00:05:52,143 Austria, Czech Republic, Hungary, of course, Switzerland. 107 00:05:52,483 --> 00:05:56,534 But, equally true, these countries are actually quite close to the coast 108 00:05:56,534 --> 00:05:58,556 and they are close to other rich countries. 109 00:05:58,556 --> 00:06:02,372 If you take those countries out, the differences become even more stark. 110 00:06:02,902 --> 00:06:06,301 Among the landlocked nations, 111 00:06:06,301 --> 00:06:09,238 the richest outside of Europe is actually Botswana, 112 00:06:09,238 --> 00:06:11,190 which has diamonds. 113 00:06:11,190 --> 00:06:12,449 Pretty lucky for them. 114 00:06:13,364 --> 00:06:16,935 What you also notice is that all of these countries here, 115 00:06:16,935 --> 00:06:18,437 they are all in Africa. 116 00:06:18,437 --> 00:06:23,401 In fact, Africa has more landlocked countries 117 00:06:23,401 --> 00:06:25,760 than any other continent. 118 00:06:26,126 --> 00:06:28,792 Let's take a close look at why this is the case. 119 00:06:31,200 --> 00:06:33,495 Okay, here is a standard-looking map of the world 120 00:06:33,495 --> 00:06:34,962 you probably all seen it before. 121 00:06:35,155 --> 00:06:38,553 It's not obvious from this map why Africa should be 122 00:06:38,553 --> 00:06:40,290 particularly landlocked. 123 00:06:40,673 --> 00:06:43,654 But there's also something funny about this map, something odd. 124 00:06:43,797 --> 00:06:45,166 Take a look at Greenland. 125 00:06:45,389 --> 00:06:47,649 Greenland on this map looks huge, 126 00:06:47,649 --> 00:06:50,309 it looks almost as big as Africa. 127 00:06:50,628 --> 00:06:52,582 And, yet, when you check the statistics, 128 00:06:52,582 --> 00:06:57,410 what you find is that Greenland is, in fact, 1/11 the size of Africa. 129 00:06:57,694 --> 00:06:58,590 What's going on? 130 00:06:59,183 --> 00:07:01,333 Well, this is actually an illusion. 131 00:07:01,741 --> 00:07:05,748 It's an illusion created by the particular projection we've used, 132 00:07:05,748 --> 00:07:07,346 the Mercator projection, -- 133 00:07:07,712 --> 00:07:13,395 to project a 3D surface, namely a globe, onto 2 dimensions. 134 00:07:13,750 --> 00:07:18,675 Whenever you take a 3D surface and you map it in 2 dimensions, 135 00:07:18,675 --> 00:07:21,234 you are bound to get some illusions. 136 00:07:21,234 --> 00:07:24,805 And in this case, we get the illusion of size. 137 00:07:25,628 --> 00:07:27,555 Let's take a look at a different projection. 138 00:07:27,565 --> 00:07:29,475 This is the Albers Projection, 139 00:07:29,616 --> 00:07:32,537 which maintains equal sizes areas. 140 00:07:32,537 --> 00:07:36,731 We are going to get some illusions about the shape of continents, 141 00:07:36,731 --> 00:07:39,859 but we are going to get the right equivalent sizes. 142 00:07:39,859 --> 00:07:42,839 And on this projection what you see, quite correctly, 143 00:07:42,839 --> 00:07:45,763 is that Greenland is much smaller than Africa. 144 00:07:46,332 --> 00:07:50,872 What you also see is that Africa is huge. 145 00:07:51,083 --> 00:07:54,199 Africa is an enormous continent. 146 00:07:54,743 --> 00:07:57,419 Let's also show that in a different way. 147 00:07:59,639 --> 00:08:01,794 Okay, here's another way of looking at Africa 148 00:08:01,794 --> 00:08:04,565 and what you can see, again, Africa is big. 149 00:08:04,699 --> 00:08:09,050 You can fit the entire United States, excluding Alaska, into Africa. 150 00:08:09,050 --> 00:08:12,735 You can put China as well into Africa. India can go into Africa. 151 00:08:12,735 --> 00:08:14,241 Eastern Europe, most of Europe; 152 00:08:14,241 --> 00:08:17,185 here's Italy, Germany, France, and Spain, and so forth. 153 00:08:17,560 --> 00:08:20,007 Now, remember that chunk in the United States, 154 00:08:20,007 --> 00:08:22,045 which is inland, which had low GDP, 155 00:08:22,045 --> 00:08:24,725 well, just map that into Africa. 156 00:08:24,885 --> 00:08:27,526 You can see what is going on. 157 00:08:27,636 --> 00:08:29,459 Here's another way of looking at this. 158 00:08:29,604 --> 00:08:31,326 Let's go back to our projection. 159 00:08:31,611 --> 00:08:33,581 Take a look at the coastline of Africa. 160 00:08:34,374 --> 00:08:35,928 Here's the coastline of Africa. 161 00:08:35,928 --> 00:08:38,538 Now compare with the coastline of Europe. 162 00:08:38,782 --> 00:08:41,457 Well, in Europe you've got all these nooks and crannies 163 00:08:41,457 --> 00:08:43,631 and inlets and seas. 164 00:08:43,679 --> 00:08:46,686 Here's the Black Sea over here and so forth. 165 00:08:47,243 --> 00:08:50,593 In fact, what you'll find if you do this, if you measure the coastline, 166 00:08:50,771 --> 00:08:54,548 is that the coastline of Europe, is 2-3 times longer 167 00:08:54,548 --> 00:08:56,078 than the coastline of Africa. 168 00:08:56,610 --> 00:08:58,025 2-3 times, by the way, 169 00:08:58,025 --> 00:09:00,345 because it can actually differ depending upon 170 00:09:00,487 --> 00:09:04,681 how you measure those fjords and so forth in Europe. 171 00:09:04,681 --> 00:09:08,542 The fractal nature of coastline makes it a little bit arbitrary to measure. 172 00:09:09,142 --> 00:09:10,614 Basic point however is, 173 00:09:10,788 --> 00:09:14,087 Europe is much smaller than Africa, 174 00:09:14,087 --> 00:09:16,475 and, yet, the coastline of Europe, 175 00:09:16,475 --> 00:09:19,565 the access to the ocean, access to the seas, 176 00:09:19,565 --> 00:09:22,415 to navigable rivers, much much larger. 177 00:09:22,619 --> 00:09:25,696 So Europe has much more access to trade 178 00:09:25,906 --> 00:09:27,757 than does Africa. 179 00:09:33,118 --> 00:09:34,584 So let's review briefly. 180 00:09:34,991 --> 00:09:38,313 From Adam Smith, we have that sea coast and navigable rivers, 181 00:09:38,313 --> 00:09:40,790 that leads to trade to larger markets. 182 00:09:40,996 --> 00:09:43,819 Larger markets that means more specialization 183 00:09:43,819 --> 00:09:46,448 and improvements in knowledge, 184 00:09:46,568 --> 00:09:49,452 and improvements in knowledge lead to growth. 185 00:09:49,983 --> 00:09:52,345 In contrast with this, if you are landlocked, 186 00:09:52,345 --> 00:09:54,336 you don't get those trade, you don't get trade, 187 00:09:54,336 --> 00:09:57,277 you don't get larger markets you don't get that specialization, 188 00:09:57,277 --> 00:09:59,030 you don't get that improvement in knowledge, 189 00:09:59,098 --> 00:10:01,617 and, instead, you get stagnation. 190 00:10:02,267 --> 00:10:05,027 Now, again, let's apply this to Africa. 191 00:10:06,817 --> 00:10:11,423 Adam Smith in fact had the theory and application done in 1776. 192 00:10:11,793 --> 00:10:15,466 He says, "There are in Africa none of those great inlets, 193 00:10:15,466 --> 00:10:17,926 such as the Baltic and Adriatic seas in Europe, 194 00:10:17,926 --> 00:10:21,372 the Mediterranean and the Black Sea in both Europe and Asia [...] 195 00:10:21,567 --> 00:10:26,381 to carry maritime commerce into the interior parts of that great continent: 196 00:10:26,623 --> 00:10:30,469 and the great rivers of Africa are at too great a distance from one another 197 00:10:30,736 --> 00:10:34,316 to give occasion to any considerable inland navigation." 198 00:10:34,561 --> 00:10:39,381 So Adam Smith nailed in 1776 one of the key connections 199 00:10:39,381 --> 00:10:41,122 between geography, 200 00:10:41,122 --> 00:10:44,530 between access to the coast, access to navigable rivers, 201 00:10:44,530 --> 00:10:45,850 and development. 202 00:10:46,096 --> 00:10:49,667 Amazingly, it wasn't until some 200 or so years later 203 00:10:49,667 --> 00:10:53,050 that Jeff Sachs and others really began to pick this up 204 00:10:53,050 --> 00:10:55,888 and bring it back into the growth story. 205 00:10:56,131 --> 00:10:59,422 One reason to remember our history of economic thought. 206 00:10:59,939 --> 00:11:03,899 Okay, we'll be looking more at development and geography, 207 00:11:03,899 --> 00:11:07,236 in particular malaria and other parasites and things like that, 208 00:11:07,236 --> 00:11:09,768 and their influences in the next lecture. 209 00:11:10,054 --> 00:11:10,787 Thanks.