Chapter 11
Geography and Economic Resources
It seems obvious that where a country is located, its neighbours, its weather
and its natural resources must influence economic outcomes. Of all the deep
determinants it may seem that geography is the most straightforward to meas-
ure for the purposes of economic analysis and statistical testing. For example,
average temperatures are easier to measure than culturally inspired inclina-
tions to work hard; the availability of natural resources is easier to gauge than
the strength of property rights. However obvious all this may sound, geogra-
phy is only the latest and recent addition to the list of deep determinants. A very
vigorous research agenda over the last decade or so led by scholars such as
Paul Collier, Jeffrey Sachs, Jared Diamond and others has created a set of theo-
retical links to test and an excellent database on economically relevant
geographical variables, and they have sought to demonstrate the link between
geography and long-run economic growth. The geography hypothesis does not
suffer from the problems of causation inherent in discussion of institutions in
particular (whether growth leads to good institutions or vice versa). Geography
is about the physical attributes of particular locations, such as access to navi-
gable rivers, climate, soil quality and distance from coastlines etc. In statistical
work the causal relations are clear because they are not caused by economic
and other social variables (in the language of economists, they are exogenous).
But,of course there remain deep controversies that make for a fascinating
debate.
Geography and economic growth
Geography is a deeper determinant so will affect economic growth through its
impact on the proximate determinants. Many of the effects of geography are
likely to impact economic growth through TFP. Adverse weather conditions
may directly influence the productivity (yield) of land in agriculture. Diseases
associated with a tropical climate may divert resources at the household level
away from investment in physical and human capital to emergency health care.
Disease associated with frequent morbidity may reduce the human capital
acquired through schooling or learning on the job so reduce the productivity of
labour. Geography will also have an important link through another of the
deeper determinants, openness. Producers in landlocked countries will face
greater costs to engage with international trade and lose the benefits of facing
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