Geography Flashcards
Challenges to measuring development
- Lack of data collection capacity in the countries that matter most
- Frequent, representative data on the most vulnerable is challenging
- Hard to attribute prgoress to specific policies when many things change at the same time
- Multi-dimensionality
How does geography affect development, Hausmann 2001
Some countries are “doomed” to not develop
- Tropical: 1.5% points slow growth; 7 years lower life expectancy
- Landlocked: 0.6% points slower growth
Why does geography affect development?
- Transportation and coordination costs limit trade and globalization
– You cannot gain from the knowledge of neighbors
—> No capital flows - Climate limits agricultural and labor productivity
– Soil suitability is a big predictor of development - Burden of tropical disease reduces growth by 1% point
– 627,000 people died of malaria in 2020 - Eurasian crops, animals, and technologies cannot be transferred to tropical contexts
– You can growth European crops in the same latitude across all of Eurasia unlike Africa which isn’t as wide, the climate changes across the longitude (vertically) - Vulnerability to natural disasters damages infrastructure and causes conflict
Why is geography not enough to explain differences in development?
- Tropical / landlocked countries can develop
- Local variations in development where geography is fixed
- A lack of convergence
- A reversal of fortunes
Tropical / landlocked countries can develop (why geography is not enough)
- Singapore, Shenzhen/Guangzhou, Costa Rica; Botswana, Switzerland
- Challenges are not permanent, eg. Cuba, Paraguay have eliminated malaria
Local variations in development where geography is fixed (why geography is not enough)
- Korean peninsula as an example that there is variation in development even in essentially the same geography
A lack of convergence (why geography is not enough)
- Differences in crops, animals, and technologies have been eradicated by trade
- Why is Nicaragua still poor today?
A reversal of fortunes (why geography is not enough)
- The US has overtaken Latin America
- But Central America has not, despite hosting the Mayans and Aztecs
How do natural resources affect development?
The places that export the highest amounts of natural resources seem to have the lowest levels of growth
Economic effects for states that export natural resources
- Commodity prices decline relative to manufactured goods over time (the Prebisch-Singer hypothesis)
– Better terms of trade for countries exporting manufactured goods - Commodity prices are volatile
- No spillover effects to the rest of the economy
– eg. skills / resources used for drilling oil aren’t applicable to other sectors - Dutch disease
– Selling commodities pushes up the exchange rate, harming other exports - Male-dominated mining areas create gendered risks and inequality
– eg. increase in HIV/AIDS and alcoholism
How can governments that export natural resources mitigate the economic effects?
- Stabilization funds
- Investing in diversification
Definition of rents
Excess incomes above normal eg. compared to the cost of production
- eg. Saudi selling barrels of oil for $80 when the cost of production (drilling etc.) was $10
Political effects of rents
- Myopia: due to “easy” money
- Corruption: capture by beneficiary interest groups who lobby to keep rents
- Authoritarianism: leaders are more secure and transition to democracy is less likely
- Rentier states: weaker institutions, low taxes, and no social contract
- Conflict: extortion and fighting for resource control
Myopia (political effects of rents)
Due to “easy” money
- Rents finance patronage to buy support
- But leaders often try to stay for decades
Corruption (political effects of rents)
Capture by beneficiary interest groups who lobby to keep rents
- eg. failing companies ask government for money to save their business and in turn promise their and their workers’ political support for the government
- But states are rich enough to resist
- Oil tends to fuel corruption
Authoritarianism (political effects of rents)
Leaders are more secure and transition to democracy is less likely
- But more revenue also reduces elite’s fear of taxation under democracy
- No country with more resources than Mexico has become democratic since 1960
Rentier states (political effects of rents)
Weaker institutions, low taxes, and no social contract
- But most developing countries face these problems
Conflict (political effects of rents)
Extortion and fighting for resource control
- But resources can fund security forces
Countries where the resource curse did not occur, and reasons
Norway
- Oil was discovered in 1969, after it developed strong democratic institutions
Botswana
- Second-largest diamond deposit in the world, but rents were well managed by the elite that continued from the pre-colonial era
Under what conditions do natural resources harm development?
- When they generate large, state-controlled rents
– Makes the issue much worse
– When the resource is not worth much less likely to become an issue - When resources are controlled by nationalized firms
– If there is a credible gap between government and producer it is much less likely to become corrupt - When institutions are weak already
