Did Geography Matter

The abundance of natural resources is always going to be beneficial to a countries development. Therefore it is unsurprising that the oil rich Middle East has increased its share of the world GDP by 400% between 1870 and 2001. Whereas Western Europe has seen a 13.2% decline throughout the same period. This explicitly shows the importance of geography to a developing country. However it is important to recognise that factor endowment is more significant than just increasing GDP. It has implications for comparative advantage and thus for the position of an economy in the international division of labour as in the Heckscher-Ohlin theory of international trade. Nevertheless what underpins most development is trade and here the importance of geography is paramount in terms of distance.

Geographical distance is seen as being very important in terms of both economic and institutional development. It is evident that developed countries such as the US and UK have had complete world market access. As a result they have benefited from strong economic and institutional development. In comparison remote areas in Africa with no transport opportunities have been unwillingly forced into not being able to export their goods. For example in Ghana a highly specialised cloth is produced but is unable to be exposed to the world market due to poor institutional practice and geographical position. Nevertheless as time has worn on the effects of globalisation have begun to challenge the economic benefits of proximity. As a result another question must be asked, has globalisation and global economic interdependence overcome the significance of distance and proximity. Also it must be considered what was a greater impact on development and productivity, geography or the impact of institutions.

To fully understand the importance of geography on economic development it is useful to look at how countries are impacted when one of these obstacles are lifted. We now have the luxury to look at this as over recent years geographical distance issues have been diminishing due to the ever-expanding effects of globalisation and agglomeration. Agglomeration is defined as when transport costs fall to an intermediate level and as a result countries can achieve economies of scale and utilise their own comparative advantage. Proximity to large markets permits internal economies of scale and technological progress. The stronger these effects are the more likely it is that whole regions will de-industrialise as others industrialise. The 19th Century steam era of industrialisation provide an illustration of how the overcoming of a geographic issue are so important to a countries development. The effects of agglomeration can ultimately be seen as a substantial part of American overtaking Britain during the second industrial revolution, which was underpinned by the huge trans-Atlantic factor flows. This resulted in comparative advantages being developed in new industries while Britain remained the world leader in cotton textiles based on unmatched advantages of agglomeration. This explicitly shows how if just a small part of geography is overcome development can thrive hugely. Therefore factors such as agglomeration and other geographical factors explained the widening gap between industrialised and de-industrialised societies which rapid expansion only having taken place in a few. However the other issue to consider is whether geography really matters at all or is it that geographical factors are just blamed for the effects or poor institutional development.

In the most extreme argument it can be contended that geography did not matter at all and that the most important factor in development was the set up of appropriate institutions. Generally it can be seen that less developed and low production countries are those without strong institutions. For example Africa, which is full of corruption and backward technology, only shares 3.3% of the world GDP whereas North American shares 23.3% and experiences a strong institutional backbone. This continues when looking at the fact that the average African only has 5.3% GDP of that of a U.S citizen. This suggests that Geography matters little as both continents experience extreme climates in areas and are both rich in natural resources. Nevertheless this argument does seem a little extreme and small geographical factors can be seen as the points, which extenuate the differences to the extent development and growth have diverged. These include the fact that Africa is prone to more disease due to its climate. Also that it contains much more arid land and in terms or real natural resources is far less than North America. Therefore it seems that geography did indeed matter but it cannot be seen as the sole reason for a countries development or lack of. Institutions are equally as important and must not be discounted.

Therefore in conclusion it can be seen that geography did indeed matter. The affects of climate, natural resources and distance have a great bearing on a countries economic development. The effects of agglomeration and globalisation illustrate this by showing how when distance is overcome a countries economic development can alter greatly. Nevertheless geography is not the sole reason for a countries development. Factors such as the creation of effective institutions must be recognised. However it can be seen that what underpins this is often the geography of the situation. As mentioned before tropical climates seem to breed institutions of slavery with a ruling elite. Therefore it seems that with the correct geographical factors development can be promoted and due to this certain countries have had a head start over history.