Welcome, everyone.
Today we are going to begin a new unit.
We are going to be talking about geography and development.
And by geography, I mean the relatively immutable and constant features,
things like location, topography, climate,
including temperature, rainfall, soil quality,
wildlife, especially parasites,
and the influence of all of these on development.
This is obviously a big topic,
so today we are just going to focus on geography and trade.
So I want to begin by giving two perspectives on trade.
The first is the Ricardian perspective.
So Ricardo said, when 2 countries specialize in their comparative advantage,
that is, they specialize in producing the good,
which they can produce at lowest opportunity cost,
and then they trade,
both nations are better off.
Now, notice that innovation is not the focus of Ricardo.
So Ricardo says, "There already are two goods, wine and cloth.
We can get more of both goods if Portugal specializes in producing wine,
England specializes in producing cloth, and then they trade."
So for Ricardo,
trade is about improvements in static efficiency.
Notice also that in Ricardo, market size is really not a key variable.
The situation is very different in Adam Smith.
Adam Smith has a completely different theory of trade.
Let's take a look at that.
Smith lays out his theory of trade in a chapter in the Wealth of Nations
called The division of labor is limited by the extent of the market.
And Smith makes this remarkable and very deep insight.
He says, "As by means of water-carriage," that is by ship and boat,
"a more extensive market is opened to every sort of industry
than what land-carriage alone can afford it.
So it is upon the sea-coast, and along the banks of navigable rivers,
that industry of every kind
naturally begins to subdivide and improve."
So what Adam Smith is saying is that when you're along in sea coast
you have access to a larger market.
You can sell your goods in a larger market.
And because of that, --
you get economies of scale but, also, you get specialization of knowledge.
You get people learning more as they produce more.
This creates improvements.
So for Adam Smith, trade is a dynamic growth story.
Trade, means larger markets.
Larger markets means more specialization.
It means more improvements in knowledge, and therefore it means more growth.
So let's take a look at Adam Smith's theory
and see if we can see it today.
So what we have here is a map of GDP density,
that is, the amount of GDP produced per square kilometer.
And what you can see from this map is that Smith was absolutely correct.
So what you can see is that where GDP is, where civilization is,
it's along the coast.
Here's the coastal United States
and, along these navigable rivers, the Great Lakes region.
You can also see Western Europe, all along the coast,
all of this coastal area, Western Europe, highly developed.
Over here, Japan,
and, of course, it's the coast of China
which is rapidly developing all due to those export markets.
Here again, the coast of Australia.
Now, in fact, what you can also see
is that even in places where there are great institutions,
where they have institutions of law and order,
property rights, and incentives, and so forth,
that we can still have low GDP per square kilometer.
So take a look at Canada.
So most of Canada, it's like the Sahara Desert, --
in terms of GDP.
Canada, where Canada is developed,
it's along the coast and along navigable rivers
close to the United States.
Even in the United States,
there are entire regions which really are bereft of GDP
which are almost as barren as is the Sahara Desert.
So if you are looking just at institutions,
you might say, "Well, even in the United States,
where we have these great institutions,
there's plenty of places where there isn't much GDP,
so it must be something else,
and geography, --
particular closeness to rivers and closeness to sea coast
is an important element of this.
By the way, economists really used to ignore geography.
And it's due to Jeff Sachs and some of his co-authors,
particular John Gallup and Andrew Mellinger
that a lot of this work started to be done.
In addition to the article which I've noted here, --
these three authors have a review article in Scientific American, 2001,
called The Geography of Poverty and Wealth,
which I recommend.
Now, if being close to rivers,
if being close to the sea coast is important
then what is the worst thing?
Well, the worst thing that can happen is if you are landlocked.
Let's take a look.
So what we're showing here is GDP per capita in countries
which have access to the coast over here,
compared to countries that are landlocked over here.
And what you see immediately is that countries which are landlocked
have half, actually, a little bit less
than half the GDP of countries which have access to the coast.
If we look over here, at the landlocked countries,
you can see there's actually a few landlocked ones in Europe:
Austria, Czech Republic, Hungary, of course, Switzerland.
But, equally true, these countries are actually quite close to the coast
and they are close to other rich countries.
If you take those countries out, the differences become even more stark.
Among the landlocked nations,
the richest outside of Europe is actually Botswana,
which has diamonds.
Pretty lucky for them.
What you also notice is that all of these countries here,
they are all in Africa.
In fact, Africa has more landlocked countries
than any other continent.
Let's take a close look at why this is the case.
Okay, here is a standard-looking map of the world
you probably all seen it before.
It's not obvious from this map why Africa should be
particularly landlocked.
But there's also something funny about this map, something odd.
Take a look at Greenland.
Greenland on this map looks huge,
it looks almost as big as Africa.
And, yet, when you check the statistics,
what you find is that Greenland is, in fact, 1/11 the size of Africa.
What's going on?
Well, this is actually an illusion.
It's an illusion created by the particular projection we've used,
the Mercator projection, --
to project a 3D surface, namely a globe, onto 2 dimensions.
Whenever you take a 3D surface and you map it in 2 dimensions,
you are bound to get some illusions.
And in this case, we get the illusion of size.
Let's take a look at a different projection.
This is the Albers Projection,
which maintains equal sizes areas.
We are going to get some illusions about the shape of continents,
but we are going to get the right equivalent sizes.
And on this projection what you see, quite correctly,
is that Greenland is much smaller than Africa.
What you also see is that Africa is huge.
Africa is an enormous continent.
Let's also show that in a different way.
Okay, here's another way of looking at Africa
and what you can see, again, Africa is big.
You can fit the entire United States, excluding Alaska, into Africa.
You can put China as well into Africa. India can go into Africa.
Eastern Europe, most of Europe;
here's Italy, Germany, France, and Spain, and so forth.
Now, remember that chunk in the United States,
which is inland, which had low GDP,
well, just map that into Africa.
You can see what is going on.
Here's another way of looking at this.
Let's go back to our projection.
Take a look at the coastline of Africa.
Here's the coastline of Africa.
Now compare with the coastline of Europe.
Well, in Europe you've got all these nooks and crannies
and inlets and seas.
Here's the Black Sea over here and so forth.
In fact, what you'll find if you do this, if you measure the coastline,
is that the coastline of Europe, is 2-3 times longer
than the coastline of Africa.
2-3 times, by the way,
because it can actually differ depending upon
how you measure those fjords and so forth in Europe.
The fractal nature of coastline makes it a little bit arbitrary to measure.
Basic point however is,
Europe is much smaller than Africa,
and, yet, the coastline of Europe,
the access to the ocean, access to the seas,
to navigable rivers, much much larger.
So Europe has much more access to trade
than does Africa.
So let's review briefly.
From Adam Smith, we have that sea coast and navigable rivers,
that leads to trade to larger markets.
Larger markets that means more specialization
and improvements in knowledge,
and improvements in knowledge lead to growth.
In contrast with this, if you are landlocked,
you don't get those trade, you don't get trade,
you don't get larger markets you don't get that specialization,
you don't get that improvement in knowledge,
and, instead, you get stagnation.
Now, again, let's apply this to Africa.
Adam Smith in fact had the theory and application done in 1776.
He says, "There are in Africa none of those great inlets,
such as the Baltic and Adriatic seas in Europe,
the Mediterranean and the Black Sea in both Europe and Asia [...]
to carry maritime commerce into the interior parts of that great continent:
and the great rivers of Africa are at too great a distance from one another
to give occasion to any considerable inland navigation."
So Adam Smith nailed in 1776 one of the key connections
between geography,
between access to the coast, access to navigable rivers,
and development.
Amazingly, it wasn't until some 200 or so years later
that Jeff Sachs and others really began to pick this up
and bring it back into the growth story.
One reason to remember our history of economic thought.
Okay, we'll be looking more at development and geography,
in particular malaria and other parasites and things like that,
and their influences in the next lecture.
Thanks.