WEBVTT
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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
geography and development.
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And by geography, I mean the relatively
immutable and constant features,
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things like location, topography, climate,
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including temperature,
rainfall, soil quality,
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wildlife, especially parasites,
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and the influence of all of these
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
geography and trade.
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So I want to begin by
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
specialize in their comparative advantage,
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that is, they specialize in
producing the good,
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which they can produce
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
is not the focus of Ricardo.
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So Ricardo says, "There already are
two goods, wine and cloth.
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We can get more of both goods
if Portugal specializes in producing wine,
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England specializes in producing cloth,
and then they trade."
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So for Ricardo,
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trade is about improvements
in static efficiency.
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Notice also that in Ricardo,
market size is really not a key variable.
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The situation is very different
in Adam Smith.
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Adam Smith has a
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
in a chapter in the Wealth of Nations
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called The division of labor is limited
by the extent of the market.
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And Smith makes this remarkable
and very deep insight.
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He says, "As by means of water-carriage,"
that is by ship and boat,
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"a more extensive market is opened
to every sort of industry
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than what land-carriage alone
can afford it.
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So it is upon the sea-coast,
and along the banks of navigable rivers,
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that industry of every kind
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naturally begins
to subdivide and improve."
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So what Adam Smith is saying is that
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
in a larger market.
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And because of that, --
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you get economies of scale but, also,
you get specialization of knowledge.
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You get people learning more as
they produce more.
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This creates improvements.
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So for Adam Smith,
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,
and therefore it means more growth.
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So let's take a look at
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
a map of GDP density,
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that is, the amount of GDP
produced per square kilometer.
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And what you can see from this map
is that Smith was absolutely correct.
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So what you can see is that
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,
the Great Lakes region.
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You can also see Western Europe,
all along the coast,
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all of this coastal area,
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
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
where there are great institutions,
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where they have
institutions of law and order,
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property rights, and incentives,
and so forth,
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that we can still have low GDP
per square kilometer.
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So take a look at Canada.
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So most of Canada,
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
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
which really are bereft of GDP
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which are almost as barren
as is the Sahara Desert.
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So if you are looking
just at institutions,
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you might say,
"Well, even in the United States,
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where we have these
great institutions,
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there's plenty of places
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
and closeness to sea coast
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is an important element of this.
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By the way, economists really
used to ignore geography.
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And it's due to Jeff Sachs
and some of his co-authors,
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particular John Gallup
and Andrew Mellinger
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that a lot of this work
started to be done.
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In addition to the article
which I've noted here, --
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these three authors have a review article
in Scientific American, 2001,
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called The Geography of
Poverty and Wealth,
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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
is important
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then what is the worst thing?
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Well, the worst thing that can happen
is if you are landlocked.
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Let's take a look.
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So what we're showing here
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
that are landlocked over here.
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And what you see immediately
is that countries which are landlocked
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have half, actually,
a little bit less
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than half the GDP of countries
which have access to the coast.
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If we look over here,
at the landlocked countries,
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you can see there's actually
a few landlocked ones in Europe:
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Austria, Czech Republic, Hungary,
of course, Switzerland.
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But, equally true, these countries
are actually quite close to the coast
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and they are close
to other rich countries.
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If you take those countries out,
the differences become even more stark.
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Among the landlocked nations,
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the richest outside of Europe
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
all of these countries here,
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they are all in Africa.
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In fact, Africa has more
landlocked countries
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than any other continent.
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Let's take a close look
at why this is the case.
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Okay, here is a standard-looking
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
why Africa should be
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particularly landlocked.
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But there's also something funny
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,
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
the particular projection we've used,
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the Mercator projection, --
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to project a 3D surface,
namely a globe, onto 2 dimensions.
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Whenever you take a 3D surface
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,
we get the illusion of size.
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Let's take a look at
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
about the shape of continents,
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but we are going to get
the right equivalent sizes.
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And on this projection
what you see, quite correctly,
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is that Greenland
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
of looking at Africa
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and what you can see,
again, Africa is big.
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You can fit the entire United States,
excluding Alaska, into Africa.
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You can put China as well into Africa.
India can go into Africa.
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Eastern Europe, most of Europe;
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here's Italy, Germany, France,
and Spain, and so forth.
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Now, remember that chunk
in the United States,
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which is inland,
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
all these nooks and crannies
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and inlets and seas.
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Here's the Black Sea
over here and so forth.
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In fact, what you'll find if you do this,
if you measure the coastline,
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is that the coastline of Europe,
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
depending upon
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how you measure those fjords
and so forth in Europe.
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The fractal nature of coastline makes it
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,
access to the seas,
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to navigable rivers,
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
sea coast and navigable rivers,
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that leads to trade to larger markets.
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Larger markets that means
more specialization
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and improvements in knowledge,
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and improvements in
knowledge lead to growth.
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In contrast with this,
if you are landlocked,
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you don't get those trade,
you don't get trade,
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you don't get larger markets
you don't get that specialization,
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you don't get
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
and application done in 1776.
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He says, "There are in Africa
none of those great inlets,
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such as the Baltic
and Adriatic seas in Europe,
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the Mediterranean and the Black Sea
in both Europe and Asia [...]
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to carry maritime commerce into
the interior parts of that great continent:
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and the great rivers of Africa
are at too great a distance from one another
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to give occasion to
any considerable inland navigation."
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So Adam Smith nailed in 1776
one of the key connections
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between geography,
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between access to the coast,
access to navigable rivers,
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and development.
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Amazingly, it wasn't until
some 200 or so years later
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that Jeff Sachs and others
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
our history of economic thought.
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Okay, we'll be looking more
at development and geography,
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in particular malaria and other parasites
and things like that,
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and their influences in the next lecture.
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Thanks.