geography, climate, and natural resources · geography, climate, and natural resources •...

Copyright © 2013 Pearson Education, Inc. Publishing as Addison-Wesley

GEOGRAPHY, CLIMATE,AND NATURAL RESOURCES

Chapter 15

Modified for EC 375 byBob Murphy


Geography, Climate, and Natural Resources

• These are factors that clearly are not affected by reverse causa5on.

• La5tude and income appear to be related:– What’s behind this?– Examine how geography, climate, and natural resources vary across countries.

– Develop theories for why they might affect income.– Find support for geography and climate, but not for natural resources.

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Figure 15.1 Relationship between Latitude and Income per Capita

Sources: Heston, Summers, and Aten (2011), Gallup, Mellinger, and Sachs (2001).

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Geography

• Loca5on, Trade, and Growth:– Proximity to the sea affects openness to trade:

• Figure 15.2, proximity is measured as being within 60 miles of ocean or navigable river.

• Western Europe has 1/8 land mass of Africa, but 50% more coastline.

– Distance from trade centers and proximity to sea affect transport costs:

• For U.S. these costs are 3.6% of imports, Western Europe 4.9%, East Asia 9.8%, La5n America 10.6%, sub-‐Saharan Africa 19.5%.

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Figure 15.2 Regional Variation in Income and Access to the Sea

Source: Gallup, Sachs, and Mellinger (1999).

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Geography

• Geographic Concentra5on and Spillovers:– Clustering of rich countries:

• Spillovers can lead to clustering as take advantage of ideas to copy, low wages (Maquiladora plants), but need to have poli5cally stable neighbor for this to happen (rich countries are more poli5cally stable on average).

• Common characteris5cs can lead to clustering as common climate, common culture (Confucian ideal).

– Hope for the poor:• Not much hope if clustering is due to spillovers as need to be near a rich country.

• If due to common factors, then don’t need to be near a rich country as growth can occur for other reasons.

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Guns, Germs, and Geography

• Europe Dominates other Regions of World:– Be9er weapons and more complex social organiza>ons.– Asia not dominated to same extent as were the Americas, Australia, and Africa because it was not as far behind technologically.

– Eurasia had certain other advantages (Diamond):• More mammal species that could be domes>cated and more large seeded grass species that could be domes>cated as food grains.

• Partly due to luck but also due to size-‐-‐50% larger than Americas, 2.5 >mes the size of sub-‐Saharan Africa, 8 >mes the size of Australia.

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Guns, Germs, and Geography

– Eurasia had certain other advantages:• East-‐West orienta5on of land area-‐-‐allows domes5ca5on of animals and agriculture to spread easily giving rise to a surplus of food, greater popula5on density, advanced civiliza5on, and a class of elites that helped develop new technologies (wri5ng, metallurgy, ocean-‐going ships).

• Disease-‐-‐European popula5on density meant that people were in close contact with animals, allowing some animal diseases (measles, small pox) to transfer to humans, and with a large popula5on some people develop immunity-‐-‐other areas of world lack this immunity.

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Geography

• Geography and Government:– Effect on size of countries:

• Europe had many states-‐-‐500 poli>cal units in 1600, 25 in 1900, while China was very unified (even aVer conquests by Mongols in 13th century and Manchus in 17th century).

• Unifica>on in theory should be good for growth:– Large market helps further gains from specializa>on.– Produc>ve ideas can flow more easily.– Less prospect of war.

• Lack of unifica>on proved to be good for growth:– External compe>>on checks government’s power.– Innovators can move if governments try to suppress ideas.

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Geography

• Geography and Government:– Geography helped keep Europe fragmented:

• Fer>le land was sca9ered and separated by mountains, river basins, and other natural barriers.

• China did not face same geographic features-‐-‐core areas more limited and arranged around rivers and joined by the Grand Canal in 4th century B.C.

• Yet India had the same situa>on as Europe-‐-‐very fragmented yet li9le effect on growth from this.

• So geography is part of the explana>on but not all of it!

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Figure 15.3 Core Areas in Preindustrial Europe

Source: Pounds and Ball (1964).

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Figure 15.4 Core Areas in Preindustrial China

Source: Stover (1974).

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Climate

• Different Climate Zones:– See pabern across countries with respect to per capita income.

– Could be due to differences in factor accumula5on, but evidence shows it is due to differences in produc5vity.

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Table 15.1 World Climate Zones

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Figure 15.5 Latitude versus Agricultural GDP per Agricultural Worker

Source: United Nations Food and Agriculture Organization (2010).

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Climate

• Climate and Agricultural Produc5vity:– In 2004, 36% of world employment is in agriculture, but 60% in developing countries-‐-‐so differences in agricultural produc5vity can have big effects across countries.

– La5tude is posi5vely related to output per worker:• Tropical downpours may erode the soil.• Constancy of daylight period is not op5mal for growing grains such as wheat and corn.

• Lack of frosts, which kill insects (who eat the crops) and microorganisms (would help keep land fer5le).

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Climate

• Climate and Disease:– More disease in the tropics.

• Lack of freezing temperatures allows for a wider selec>on of parasites and disease-‐carrying insects.

• Evolu>on of protohumans in tropics allows more >me for parasites to evolve than in the temperate zones where humans are rela>ve newcomers.

• Incidence of malaria is related to malaria ecology index (climate and prevalence of mosquito species that only bites humans):– Suggests that pa9ern of malaria is not due to a country simply being poor for other

reasons.– No country with high index has eliminated the disease, with the excep>on of

Mauri>us.

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Figure 15.6 Malaria Ecology versus Incidence of Malaria

Sources: Kiszewski et al. (2004).

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Climate

• Climate and Human Effort:– People in warm climates can’t work as hard.– Vulnerability to cold was solved by technology-‐-‐wearing clothes, hea>ng with fire.

– People have warmed themselves for thousands of years, but only recently discovered air condi>oning.

– AC and Washington, DC (and other southern ci>es).– AC likely to have li9le immediate effect on worker produc>vity in developing countries:• Last occupa>on to get benefit is most prevalent in tropics-‐-‐agriculture.

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Natural Resources

• Natural resources and growth:– In 19th century, land rich countries (U.S., Canada, Argen>na) see wages rise more than in Europe as development proceeds, leading to immigra>on.

– Capital inflows also aimed to exploit these resource-‐rich economies-‐-‐“resource-‐driven” growth.

– But other cases this didn’t occur:• West Indies, Mexico, Peru

– Post-‐WWII:• Persian Gulf states get rich• But Nigeria, Russia remain rela>vely poor.

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Natural Resources

• Natural resources and growth:– Natural Capital-‐-‐total resource endowment.– Rela>onship with income is weak and disappears if include addi>onal poor countries for which data is lacking-‐-‐i.e., adding countries that are resource rich but poor.

– If consider instead rela>onship of natural capital and income growth, find a nega>ve effect.

– Countries that rely heavily on natural resource exports grow more slowly than those that don’t.

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Figure 15.7 Natural Capital versus GDP per Capita

Sources: World Bank (2006), Heston, Summers, and Aten (2011).

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Natural Resources

• Explana5ons for the Resource Curse:– Resource rich countries don’t develop cultural abributes necessary for economic success (saving).

– Overconsump5on-‐-‐temporary boom leads to lower saving and possibly borrowing against future revenues, yielding low investment and low growth.

– Dutch Disease-‐-‐manufacturing sector contracts as labor and capital shie into resource sector:• Country imports manufactures rather than expor>ng them.• Manufacturing sector is where most rapid produc>vity growth occurs.• Netherlands development of off-‐shore natural gas fields in 1960s.• Spain 1500s-‐-‐inflow of gold and silver from Americas.

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Natural Resources

• Effect of Dutch disease depends on degree to which exploita5on of natural resource s5mulates or impedes produc5on in other sectors.

• Backward and forward linkages:» U.S. in 19th century-‐-‐agricultural resources led to development of machinery industry and financial industry.

» Steel industry in 19th century depended on having natural resources (coal and iron) nearby, but not today-‐-‐Korea and Japan import the necessary raw materials.

» Consequence of lower transport costs.» Resource-‐producing countries today are less likely to benefit from backward and forward linkages due to lower transport costs-‐-‐and instead develop resource export enclaves (for example, offshore oil produc5on).

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Natural Resources

• Explana>ons for the Resource Curse:– Poli>cs:

• Government can manage the process and avoid nega>ve effects:– Save or invest windfall rather than use it for consump>on.– Government-‐owned resource industries can establish backward and forward linkages.– Collect taxes on resource exports and use to provide public goods.

• But the lack of evidence of posi>ve effects on growth suggests that governments are not implemen>ng effec>ve policies and may actually adopt bad policies that hinder growth:– Over-‐expansion of government sector in response to resource exploita>on as government

gains revenue and needs to distribute it.– By increasing size of revenue that the government can distribute, the natural resource

generates large rents, and how the government distributes those rents has important effects on efficiency and growth-‐-‐also gives rise to possible conflict among peoples over controlling the government.

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