Geography and Growth

… a core concept in Macroeconomic Policy

Click for MRU video

Click for MRU video

Concept description

A country’s geography can influence national economic growth and prosperity by making trade easier or more difficult.

In introducing his video (reference below and link to right) Alex Tabarrok says:

“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.

MRU practice questions

See http://www.mruniversity.com/node/330006, accessed 22 April 2016.

  1. In 1967, the Suez Canal suddenly closed and remained closed for 8 years, temporarily shutting down a major trade route for many countries. Based on the facts from the video, this temporary canal closure:

Source

Alex Tabarrok, Geography and Economic Growth, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-macroeconomics/geography-and-economic-growth, accessed 22 April 2016.

Atlas topic and subject

Wealth of Nations and Economic Growth (core topic) in Macroeconomic Policy.

Page created by: Ian Clark, last modified on 22 April 2016.

Image: Alex Tabarrok, Geography and Economic Growth, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-macroeconomics/geography-and-economic-growth, accessed 22 April 2016.