Geography and Economic Growth

Course Outline

Geography and Economic Growth

If you look at the African continent, perhaps the first word to come to mind is "enormous." And that's true. You could fit most of the United States, China, India, and a lot of Europe, into Africa. But if you compare Africa to Europe, Europe has two to three times the length of coastline that Africa has.

But what does coastline length have to do with anything?

Well, coasts mean access to water.

As benign as water might seem, it’s a major driver of economic growth. Adam Smith, the father of modern economics, argued that access to water reduced the cost of trade, and gave merchants access to larger markets. These larger markets incentivized specialization and innovation.

These twin processes ultimately spurred trade activity, and consequently, economic growth.

As an end result, civilization tended to grow wherever trade was easiest.

If you want proof of this, think of a few major cities.

Look at Istanbul, New York, Venice, Hong Kong, London, and similar areas. What do they all have in common? They all sit near a major coast or a major river. In contrast, look at some of the poorest areas in the world—places like Kampala, or Pointe-Noire. These places are all landlocked. Since goods are easier to transport over water than over land, trade in landlocked areas is more expensive.

And what happens when trade is more expensive?

It becomes harder to spark economic growth.

What this all means is economic growth is not only affected by a country’s rules and institutions, but by a country’s natural blessings, or natural hindrances, too. The effects of geography on growth cannot be discounted.


Think about some of the biggest and most prosperous cities you've been to. What do many of them have in common? Water. They sit on a major coast or on a major river. This map shows GDP density - how much GDP is produced per square kilometer. You can see that the coasts of the US and the areas along the navigable rivers of the Great Lakes regions are just chock full of GDP. Likewise, in Western Europe, in Japan along the coast of China, and the coast of Australia.


Why is this? It's much cheaper to transport goods over water than over land. So, Adam Smith argued that access to water reduced the cost of trade and gave merchants access to larger markets. In turn, larger markets gave merchants a greater incentive to specialize and to innovate. As a result, civilization grew where trade was easiest. Even today, countries that are landlocked are on average poorer than countries that have access to a coast.



What's the most landlocked continent of all? It also happens to be the continent with the most poor countries. Africa. First off, Africa is enormous. You can fit most of the United States, China, India and a lot of Europe into Africa. That's big. Second, Africa is landlocked. While Africa is far bigger in total size than Europe, if you just measure the coastline, Europe has 2 to 3 times more coastline than does Africa. And because Africa is big and landlocked, trade is more expensive, and economic growth, slower to start.



What we learned from this foray into civilization and geography is 2 things. First, being landlocked is like a natural tariff, a natural tax on trade. And if natural tariffs are bad for growth, then perhaps tariffs created by governments aren't that great for growth either. Second, growth is not just about policy. Some places have natural blessings that have helped those places to prosper. And that too helps us understand our world.



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