Economic Geography

Topics: Western Europe, Switzerland, Economics Pages: 5 (1682 words) Published: January 21, 2011
Question: How far has economic geography determined the success and failure of different parts of the world in the 20th century? According to Jared Diamond’s book, Guns, Germs, and Steel: The Fates of Human Societies,” there was no way to predict which society would develop quickly; indeed, each continent had different advantages that could have given it a head start. And yet, there have always been some countries who led the world, and others that lagged behind. Market access, location, factor endowments, and institutions all help to explain why particular countries grew, while others did not. Market access

The location of a country and its distance from others are two deciding factors in a country’s market. Transportation costs are directly related to distance, and very important to trade. Also, trade policies obviously affect how much trade there can be between countries. Stephen Redding and Anthony measured market access and supplier access, showing that they widely vary across countries (Minns 11). While the article was written in 2004, it is most likely that the 20th century showed a similar trend. The combination of distance from other countries and trade policies are two factors that affect how accessible a market is. North America has the highest market access between the United States, Canada, and Mexico because of the North American Free Trade Agreement, eliminating tariffs between the three. Next comes Western Europe, which has also low trade barriers. In contrast, Sub-Saharan Africa has very low market access because of its large distance from financial capitals like New York and London; it also suffers from internal congestion that prevents trade and self-imposed costs of trade. According to data accumulated by Angus Maddison for the Organization of Economic Cooperation and Development in 1995, Western Europe had 2.9 times the level of GDP in Africa, which increased to 13.2 by 1992 (Gallup, et al. 1). Furthermore, African GDP per capita in 1992 was $1,284, a level that Western Europe had reached in 1820 (Gallup, et al. 1). It was also shown that there is a positive relationship between income per capita and the assigned scores of market access (Minns 13). Poorer countries have low market access since they are far away from advanced economies and also have trade barriers. Distance from large markets constrains growth; we can see that distance is still a large factor regarding markets even today. Location

Where a country is located relative to its neighbors and its physical geography can give rise to differences in economies. “Location explains between 60 and 70 percent of variation in income across countries” (Minns 14). These high percentage estimates shows that location definitely matters regarding income, explaining the majority of differences in income. Furthermore, it is estimated that reducing a country’s distance to trading partners in half would raise its income by 25 percent (Minns 14). If a country could change from being an island, or moving its place on the world map, its income could rise drastically. For example, if Sri Lanka were not an island, its income would rise 7 percent (Minns 15). This is because countries that are direct neighbors tend to trade more. If it eliminated all of its trade barriers, income would rise 20 percent (Minns 15). However, countries also depend on nearby countries to grow. While Sri Lanka is close to a large economy like India, India still has a very low income per capita. If it were able to move to Central Europe, its income would increase by 67 percent (Minns 15). Unfortunately, this is impossible, but Sri Lanka could definitely become an open economy if it desired to raise income. Another factor regarding a country’s physical location is suggested in “Why Do Some Countries Produce So Much More Output Per Worker Than Others?” by Robert Hall and Charles Jones. The authors believed there is a correlation between distance from the equator and Western European...

References: Diamond, Jared. Guns, Germs, and Steel: The Fates of Human Societies. New York: W.W. Norton & Company Ltd, 1997.
Engerman, Stanley & Kenneth Sokoloff. “Factor Endowments, Inequality and Paths of Development among New World Economies.” National Bureau of Economic Research Working Paper No. 9259, October 2002.
Gallup, John, Sachs, Jeffrey, & Mellinger, Andrew. “Geography and Economic Development.” Center for International Development at Harvard University Working Paper No. 1, March 1999.
Hall, Robert E. & Charles I. Jones. “Why Do Some Countries Produce So Much More Output Per Worker Than Others?” Quarterly Journal of Economics. 1999. Vol. 114, No. 1, pp. 83-116.
Minns, Chris. “Location, location, location: geography and economic development.” EH101: London School of Economics, London. November 2, 2010. Lecture
Rodrik, Dani, Arvind Subramanian & Francesco Trebbi. “Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development.” National Bureau of Economic Research Working Paper No. 9305, October 2002.
Sachs, Jeffrey D. “Institutions Don’t Rule: Direct Effects of Geography on Per Capita Income.” National Bureau of Economic Research Working Paper No. 9490, February 2003.
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