Geography, Climate, and Natural Resources

LECTURE 10: GEOGRAPHY, CLIMATE, AND NATURAL RESOURCES
1 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE
D. NATURAL RESOURCES
E. RELATED LITERATURE

A. INTRODUCTION

Are the determinants of income differences among countries we
have examined so far truly fundamental?

In other words, can we be sure that, for example, it is the nature of a
countrys government determines its level of income and not the
other way round? [No reverse causality?]

We will look at a set of potential determinants of income differences
that are immune to this problem

Geography

Climate

Natural resources

2 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

B. GEOGRAPHY

World population > 7 billion (since 31 October 2011)

Total human inhabited area = 150 million square km

47 people per square km

But the population of the planet is not spread out evenly

90% of the worlds population lives on only 10% of the land

Most people live in places where conditions are favorable for living
and for production

Temperatures are moderate
The ground is level
Soil is fertile
Precipitation is optimal

Productive activity is therefore associated with geography
3 | P age

Relationship between Latitude and Income per Capita

Strong positive
relationship

The farther a
country is from
the equator,
the richer it is
(on average)

Reverse
causation is
ruled out

4 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

How the standard of living is related to geographic characteristic?

Geography can affect economic growth through the following
channels:

International trade

Influences of neighboring countries

Government

5 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

(1) Geography, Trade and Growth

One of the most important geographic determinants of a countrys
ability to participate in international trade is:

its proximity to the ocean (access to waterways)

Ocean transport is the cheapest way to ship goods

Only 17% of the worlds landmass is located within 100 kilometers of an
ocean or a river that is navigable as far as the sea, and yet:

50% of the worlds population lives on this land, and

nearly 70% of the worlds GDP is produced on it

6 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Regional Variation in Income and Access to the Sea

7 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Another important geographic determinant of a countrys openness to
trade is:

its location with respect to major centers of economic activity

Studies have found that, on average,

each 1000 km of distance from one of the most developed regions in
the world (the U.S., Western Europe or Japan) 1% increase in
transport cost

increasing the distance between two countries by 1% a 0.85%
reduction in trade volume (relative to GDP) between them

8 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

(2) Geographic Concentration and Spillovers

Wealthy countries tend to be near one another

E.g., Japan and South Korea, Australia and New Zealand, the U.S. and
Canada, Europe

Probably because they share some common characteristics that are
important for growth (e.g., culture, climate, history)

But this clustering can also be due to spillovers (countries influence
on their neighbors)

Wealthy countries offer jobs, opportunities for training and education,
a source for ideas and good institutions
9 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

(3) Geographys Effect on Government

Geography may affect growth through affecting the size of states and
the conduct of government

Geographical barriers

Political fragmentation

Growth Growth

[Theory] [History]
10 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Europe
Natural barriers (cut apart by mountain chains & bodies of water)
Difficult to govern as a single unit
25 states in 1900 AD; 500 political units in 1600 AD

China
Connected by rivers and the Grand Canal
Strong centralization
Remained unified since 221BC

Political fragmentation in Europe
External competition
Owners of factors of production and innovators are highly mobile
Encourage new investment and innovation (e.g., low tax)

This hypothesis partly explains why Europe has a higher level of
income today

Note, however, that we do not observe this in India and Africa (both
were politically fragmented)

11 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Core Areas in Preindustrial Europe

12 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Core Areas in Preindustrial China

13 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

B.1 DIAMONDS THEORY

Jared Diamond (1997), Guns, Germs, and Geography

Some 500 years ago, the clash of civilizations occurred in the
Americas and in Australia following the spread of Europeans

Much of the native culture, language, and population were wiped
out and replaced with European imports

By contrast, most of Asia was either never colonized by Europeans at
all or, if colonized, managed to maintain its precolonial civilization,
population, and language

In sub-Saharan Africa, European control was more complete than
in Asia, but it never resulted in the wholesale displacement of the
native population
14 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Reason:

Europeans of the 16
th
century had much better weaponry, more
sophisticated social organizations than America, Australia and Africa

But technological gap between Europe and Asia was much smaller
(so Europeans failed to dominate Asia)

Why hadnt the Americas, Australia, and sub-Saharan Africa developed
to the same level as the civilizations of Europe and Asia by the time
they all came into contact?

Diamond (1997): Geography determined this outcome

Eurasias advantages

Numerous specifies of domesticable plants & animals (more food &
stronger disease resistance)
Large landmass (more useful species)
Geographical orientation along an east-west axis (similar climates
facilitate the spread of agricultural technologies)

15 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

Availability of food
crops & domestic
animals
Agricultural
settlements
Emergence of a large
class of rulers, priests,
warriors, scientists
Creation of new
technologies (writing,
metallurgy,
oceangoing ships)
More densely
populated &
economically more
advanced
16 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

C. CLIMATE

It refers to the seasonal patterns of temperature, precipitation, winds,
and cloud cover

Climate is linked to geography, especially latitude

But climate does not just depend on latitude, it is also influenced by
other factors such as weather systems, distance from the ocean, and
altitude

For example, the highlands of Kenya are relatively moderate in their
climate, despite their proximity to the equator

Climate is linked to growth by affecting:

Agricultural productivity
Disease
Human effort
17 | P age

World Climate Zones (Koppen-Geiger system)

Climate
Zone
Description Representative Cities
Percentage of
World
Landmass
Percentage of
World
Population
GDP per Capita
Relative to
World Average
Af Tropical Rain Forest
J akarta, Indonesia
Manaus, Brazil
4.0 4.4 0.64
Am
Tropical Rain Forest with
Seasonal Monsoon
Manila, Philippines
Cochin, India Belm,
Brazil
0.8 2.4 0.41
Aw Tropical Savannah
Dhaka, Bangladesh
Kinshasa, Congo Havana,
Cuba
10.8 17.5 0.38
Cw
Subtropical: MildHumid
with Dry Winter
Hanoi, Vietnam Kanpur,
India Lilongwe, Malawi
4.3 16.0 0.44
Cf
Mild Humid Climate with
No Dry Season
New York, USA Paris,
France Shanghai, China
Sydney, Australia
7.7 19.5 2.24
Cs
Mediterranean Climate:
Mild, Humid with Dry
Summer
San Francisco, USA
Rome, Italy Santiago,
Chile
2.2 4.3 2.10
Df
Snowy-Forest Climate with
No Dry Season
Chicago, USA Moscow,
Russia
23.0 5.8 1.90
Dw
Snowy-Forest Climate with
Dry Winter
Seoul, South Korea
Vladivostok, Russia
6.2 5.3 0.64
BS Semi-arid Steppe
San Diego, USA Odessa,
Ukraine
12.3 11.8 0.55
BW
Desert: Annual
Precipitation Less than 15
in. (38 cm)
Cairo, Egypt Karachi,
Pakistan
17.3 6.2 0.58
H Highlands Mexico City, Mexico 7.3 6.8 0.78
E
Ice Climates: Average
Temperature in Warmest
Month Less Than 50F
(10C)
Nuuk, Greenland 4.0 <0.1
Source: Data on landmass, population, and GDP per capita are fromMellinger, Sachs, and Gallup (1999).

Tropical
Temperate
18 | P age

(1) Climate and agricultural productivity

Latitude versus Agricultural GDP per Agricultural Worker

Workers in
temperate
countries
producing 300
times more
agricultural output

Seasonal rainfalls
and absence of
frost in tropics
reduce output

Results can be
driven by other
factors (e.g.,
machinery,
fertilizers, human
capital of farmers,
land availability)

19 | P age

(2) Climate and disease

Malaria Ecology versus Incidence of Malaria

Malaria ecology
index measures the
susceptibility of a
countrys climate to
mosquito breeding
(which depends on
adequate rainfall
and warm
temperature)

% of the population
at risk for malaria
reflects the actual
incidence of malaria

India and Spain has
similar index values,
but Spain has
eradicated the
disease
20 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE

(3) Climate and human effort
People in warm climate cannot work hard because they will overheat

In a warm, humid climate, where the evaporation of sweat cannot keep
the body cool, people must work slowly if they are to survive

This relationship can be modified by technology (e.g., the invention of
air conditioner in 1902)

But with few exceptions such as Singapore air-conditioning has thus far
had little impact on worker productivity

A. INTRODUCTION
21 | P age

B. GEOGRAPHY
C. CLIMATE
D. NATURAL
RESOURCES

Output is not only produced by physical capital, labor, human capital,
and technology alone

It also requires natural resources such farmland, forests, and
minerals

Many countries prosper due to their abundance of natural resources

But there are also prominent examples of countries that have grown
rich despite being exceedingly poor in resources (e.g., Japan,
South Korea, and Singapore)

22 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE
D. NATURAL
RESOURCES

Many countries have also remained poor despite a generous
endowment of resources

Size of the endowment of resources can be measured using natural
capital

Natural capital value of a countrys agricultural lands, pasture
lands, forests, and subsoil resources (including metals, minerals, coal,
oil, and natural gas)
23 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE
D. NATURAL
RESOURCES

Natural Capital versus GDP per Capita

Some positive
correlation
24 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE
D. NATURAL
RESOURCES

Empirical evidence, however, shows that the effect of natural resources
on income levels is rather weak (see, e.g., Gylfason, 2001, European
Economic Review; Sachs and Warner, 2001, European Economic
Review)

This phenomenon is known as the Resource Curse

Reasons:

(1) Overconsumption
- consumption is raised to a level that cannot be sustained when the
resource boom ends

(2) Distortion of the structure of an economy
- a country with natural resources to export will import
manufacturing goods, which cause the manufacturing (technological)
sector to contract (the Dutch disease)

(3) Government
- the government, which usually own the resource extraction
industries, do not undertake effective policies to preserve revenues
generated from exporting natural resource
25 | P age

A. INTRODUCTION
B. GEOGRAPHY
C. CLIMATE
E. RELATED
LITERATURE


Gallup, Sachs and Mellinger (1999)
Geography and Economic Development, CID Working Paper [LINK]
This paper addresses the complex relationship between geography and
economic growth. It investigates the ways in which geography may matter
directly for growth as well as the effects of geography on policy choices and
institutions. It finds that location and climate have large effects on income
levels and income growth, through their effects on transport costs, disease
burdens, and agricultural productivity, among other channels.

Ang (2014)
What Drives the Historical Formation and Persistent Development of
Territorial States? Scandinavian Journal of Economics [LINK]
This paper makes the first attempt to explore the determinants of statehood
by considering the potential roles of an early transition to fully-fledged
agricultural production, the adoption of state-of-the-art military
innovations, and the opportunity for economic interaction with the regional
economic leader. The results demonstrate that only the association between
economic interaction and the rise and development of the state is
statistically robust.

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LECTURE 10: GEOGRAPHY, CLIMATE, AND NATURAL RESOURCES

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