Geographical Conditions and Economic Development Bin Zhou Department of Geography Southern Illinois University Edwardsville, IL 62026 Geographical Conditions and Economic Development Abstract



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Geographical Conditions and Economic Development
Bin Zhou

Department of Geography

Southern Illinois University Edwardsville

Edwardsville, IL 62026

Geographical Conditions and Economic Development
Abstract
This article reviews an on-going economic debate concerning the role of physical geography in economic development. Three major themes are identified. The first theme views the role of geography and governance as competing forces shaping development. The second theme views geography and governance as co-existent factors that enable society to develop. The final theme views geography as a factor that influences development through institutions. The economic debate on the role of physical geography occurs at a time when human geographers are giving increasing weight to institutions in shaping geography phenomena, and poses certain challenges to human geography study.

Keywords: physical, environmental-determinism, institutions, development, resource curse, reversal of fortune.

Although environmental determinism has long been discredited within the geography community, recent years have seen a rising debate concerning the role of geography (mainly physical geography) in economic development, primarily among economists. Many scholars depart from an institution-based perspective and give more weight to geography in shaping the state of economic development. With the publication of Diamond’s award winning Guns, Germs, and Steel (1997), the role of the physical environment has eventually been pushed to the forefront in addressing fundamental questions regarding what has contributed to the differential paths and levels of development across the world as observed today. Some label Diamond's view, which attributes different development paths to the availability of domesticatible plants and animals and the land orientation, neo-environmental determinism (Sluyter 2003). However, even the many economists who do not hold such a clear-cut view also vigorously defend the argument that physical conditions are a crucial aspect in understanding the state of underdevelopment in places such as Africa. This has formed a clear contrast to the human geography community within which political sensitivities have risen, and where the use of resources and the resultant ecological change are increasingly seen as outcomes of larger institutional processes (Blaikie 1985; Watts 2000). In general, the “culture turn” has become a main theme in nearly all sub-area study within human geography since the 1990s. Given this different development, and amid rising economic debate concerning the role of physical geography in economic development, this short report reviews the main arguments in the on-going debate, focusing on publications in economics journals and working papers. While this summary is not a report on recent human geography research per se, the issues the debates touch upon are nonetheless relevant to human geography study. Physical geography has always been an important component in human geography issues and the relationship has been a source of debate. Economists take on an issue that traditionally falls in our own court. Should we contribute to the debate with what we know? If so, are we capable of joining the debate and convincingly conveying what we know given the methodological differences between human geography and economics? These issues have important relevance in the future development of human geography study.
I. Geography or Governance?

The debate among economists on the role of physical geography and institutions can be grouped under three themes. The first theme views the role of geography and governance as competing forces shaping development. The second theme views the effect of physical geography and governance as co-existent factors that enable society to develop. The final, and a more sophisticated, theme views physical geography as a factor that influences human conditions through governance and institutions.



Economists have clearly separated the effects from physical geography and institutions. As Acemuglu et al (2003) state, geography refers to the "forces of nature" while institutions or governance is about "man-made" influences. Although very few people attribute human conditions exclusively to geography or governance, historically and contemporarily there are divergent views regarding which factor plays a primary role in shaping development. Geographers had a major hand in formulating an early version of environmental determinism. This tradition can be traced to writings by Ratzel (1882; 1891), Semple (1911), Huntington, and Taylor (Martin and James 1993), among others. According to this view, the physical environment caused social development (Rubenstein 2005). People and peoples are what they are because they have been shaped by their physical surroundings--climate, vegetation, and so on. The notion is considered to be implicitly racist since it associates the superiority of certain peoples from northern latitudes or a cool environment, and denigrates peoples from the tropics. After the 1930s, environmental determinism lost its appeal and credibility among most geographers due to its use of loose correlations and anecdotal evidence, the tendency to ignore contrary evidence, and the largely ethnocentric ranking of the environment (Martin and James 1993; Holt-Jensen 1988).

Revival of environmental determinism? Toward the end of the 20th century, some development economists, in their efforts to model divergent economic growth patterns across the world, attributed increasingly significant roles to differences among countries in terms of geographical conditions. For example, particular geographical circumstances --whether a country is landlocked and thus is not open to trade --will permanently inhibit access to a large market, limit its ability to explore economies of scale, and therefore lower its efficiency, and ultimately growth and development (Sachs and Warner 1995a, 1995b, 1997). Natural resources such as minerals and ecological conditions favoring cash crops also affect income (Easterly and Levine 2003). Bloom and Sachs (1998) point to Africa's tropical location as largely a hindrance to development. Bloom and Sachs (1998) and Sachs (2001) argue that tropical location leads to underdevelopment mainly due to (1) soils that are fragile and of lower fertility; (2) the prevalence of crop pests and parasites; (3) excessive plant transpiration and a lower rate of photosynthesis: (4) high evaporation rates and the insufficient supply of water; (5) lack of a dry season, lack of cold temperatures, or insufficient length of summer days for temperate crop growth; (6) ecological conditions favoring diseases that infect humans and livestock; (7) lack of coal deposits; and (8) high transport costs. Landes (1998) emphasizes the inhibiting effects of high temperatures on humans' willingness to work. These views that see unfavorable physical conditions as a hindrance to development are collectively called the "Geography/Endowment Hypothesis" (Coviello 2003).
The most sweeping view regarding the dominant role of the physical environment since the late 20th century is found in Jared Diamond's influential book Guns, Germs, and Steel (1997). Diamond recognizes the proximate causes of western dominance in the world since the 16th century such as guns, germs, and modern technologies (steel, etc.) that westerners used to decimate indigenous societies in the New World and Africa. Diamond looks for deeper causes that led to the rise of these proximate causes since the last Ice Age 13,000 years ago. In his search for ultimate explanations of the broadest patterns of history, Diamond zeros in on the availability of wild ancestors of plants and large mammals, suitable for domestication, on different continents, and the orientation of continents. According to Diamond, in the Fertile Crescent wild ancestors of many crops were abundant, highly productive, and occurred in large stands. Many species of cereals and pulses developed as annuals, packing much energy into producing big seeds. Domestication was relatively easy, with little additional change needed for cultivation. Many of these seeds were edible by humans, which presented their value clearly to hunters and gathers. Cereals and pulses domesticated in the Fertile Crescent accounted for six of the modern world's 12 major crops. These advantages made the big seeded cereals the first crops developed in the Fertile Crescent. As Diamond points out, the favorable local flora was not an isolated factor in securing the Fertile Crescent’s food production system. Other factors, such as climate, environment, and animals were all important enabling factors that contributed to the early rise of the West.
Blumler (1992) studies the world distribution of large seeded grass species. These are wild grasses with significant seed size that might potentially be chosen as targets for domestication by human ancestors. Of the 56 species he found, 32 are native to the Mediterranean zone or other seasonally dry environments, especially the Fertile Crescent or other parts of western Eurasia's Mediterranean zone. In contrast, East Asia has only six species, and Sub-Saharan Africa has four. The Americas have 11 species with North America having four, Mesoamerica five, and South America two. The availability of wild plants that are easy to domesticate, along with some necessary accompanying conditions for plant domestication, is at the heart of Diamond's explanation of history's broadest patterns. Similarly, western Eurasia had a high concentration of ancestors of wild large mammal species for domestication. It had 72 such species, compared with 51 in Sub-Saharan Africa, 24 in the Americas, and 1 in Australia. Of all 14 domesticated large mammals, 13 were confined to Eurasia, becoming an indispensable component of the food production system. The east-west orientation of the Eurasian continent provided ease in the spread of this productive agricultural system from the Fertile Crescent to Europe, North Africa, and the Indus Valley.
A productive food production system was only the first the step in a long sequence of development. According to Diamond's logic, the developed food production system was also responsible for high population densities. Epidemic diseases evolved from the dense population of domestic animals with which humans came into close contact. The immunities humans in the Old World acquired allowed them to survive while the germs could pass on to, and kill, the indigenous peoples of the New World upon close contact with the Old World invaders. In addition, high population densities also triggered the development of political organization, which helped effective territory governance and political/military expansion. Developed agriculture also enhanced the division of labor, promoted invention, innovation, and technological development, which eventually gave rise to guns, cannons, and other weapons. Thus, a conquering and killing machine formed based on early advantages in the rise of food production. Such a mechanism essentially explains why it is the West that dominates the other world regions instead of the other way around. Diamond's message has been further reinforced by the biogeographical evidence provided by Hibbs and Olsson (2003) and Olsson and Hibbs (2005) who found that different initial conditions in biogeography and geography largely account for the different timing of the Neolithic transition and thus ultimately help account for the large divergent income levels among nations today. They also found that the effect due to geography is only partly mediated by institution quality and partly independent of the institutions today.
Governance's Primacy. Contrary to those who attribute differential development to the physical environment, institutionalists hold the view that institutions are the first-order determinants of economic performance (Coviello 2003), or as Rodrik et al. state, institutions' primacy over geography. By institutions, economists mean a whole range of social, political, and economic governing mechanisms and cultural characteristics. Kaufmann et al. (1999a and 1999b) and Easterly and Levine (2003) design an institutional index that contains the effect of six institutional or governance measures: Voice and accountability (the extent the citizens can choose their government, political rights, civil liberties, and an independent press), political stability and absence of violence (a low likelihood that a government will be overthrown, by unconstitutional or violent means), government effectiveness (quality of public service delivery, competent of civil servants, and the degree of politicization of the civil service), light regulatory burden (relative absence of government controls on good markets, government interference in the banking system, excessive bureaucratic control on starting new businesses, or excessive regulation of private business and international trade), rule of law (protection of persons and property against violence or theft, independent and effective judges, contract enforcement), and freedom from graft (absence of the use of public power for private gain or corruption). They also adopt three macroeconomic indicators as measures of macroeconomic environment; openness (low tariff against trade and less government interference in export), real exchange rate overvaluation, and inflation. Other measures they adopt include ethnolinguistic diversity and religion.
Institutionalist views can claim a long tradition tracing back to John Locke, Adam Smith, and John Stuart Mill (Acemoglu et al 2003). For example, John Locke stressed the importance of property rights, and emphasized the role of government in "preservation of the property of …member of society" (Locke [1690] 1980:47). Economist Douglas North was awarded a Noble Prize in part for articulating the role of institutions in understanding development. In their study, Easterly and Levine (2003) find strong evidence to support the primacy of institutions or governance over geography in shaping economic performance. Their study does not support the idea that tropical location and lack of access to the sea inhibit development. In their study, the institutional index significantly explains economic development, consistent with the institutions hypothesis. In addition, in their study, the strong positive impact of institutional development on economic development is also robust to the alteration of the instrumental variables used in the model. Coviello (2003) also find evidence consistent with the institutionalist view rather than the Geography/Endowment Hypothesis.
Rodrik (2002) and Rodrik and Submaranian (2003) estimate the respective contributions from geography, institutions, and trade in determining income levels around the world. Their results show that the quality of institutions "trumps" everything else. Once institutions are controlled for, measures of geography have only very weak impacts on income. These results lead the authors to declare "Institutions rule" as reflected in the view of the primacy of institutions over geography in economic development.
II. Geography and Governance

While holding geography and institutions as the competing forces shaping economic development and human conditions, emphasizing one inevitably decreases the role of the other. Some scholars tend to emphasize the roles of both. Naude (2004) estimates the effects of geography, policy, and institutions in the context of African economic development. He finds that while institutional factors such as literacy, investment, foreign direct investment, government expenditures, and urban agglomeration have clear and significant impacts on economic development, geographic factors such as settler mortality as impacted by tropical ecology, landlockedness, land area, and malaria also play significant roles. The results reject the notion of "either institutions or geography"; that one is more important than the other in the context of economic development, and contradicts, at least for Africa, the finding of Rodrik et al. (2004) that "institutions rule." (2004: 842).


Sachs, who is generally viewed as a Geography/Endowment Hypothesist (Easterly and Levine 2003), at times also expresses views that support a more balanced approach toward the role of geography and institutions in economic development. He offers a broad explanation of divergent levels of economic performance among countries, focusing on three major categories of factors. The first category is geography factors. He points out that certain parts of the world are geographically favored with advantages ranging from natural resources, coastlines, navigable rivers, proximity to economically advanced nations, and advantageous conditions for agriculture and human health. However, Sachs equally emphasizes the role of social cultural systems, and the cumulative effects of history in shaping development levels (Sachs 2000).
The other category of factors is that of social system (governance or institutions). He states that certain social systems have supported modern economic growth, whereas others have not. Precapitalist systems based on selfdom, slavery, and inalienable landholding tend to slow modern economic growth. Socialism during the 20th century proved to be a disaster for economic well-being and growth in those places where it was adopted. Colonial rule was generally adverse to high rates of economic growth.
In addition to these two groups of factors, Sachs also points to the role of history in reinforcing previous development and exerting a cumulative feedback factor, in line with recent "New Economic Geography." Positive feedback processes amplify the advantage of early industrialization and widen the gap between rich and poor, by allowing the early developers to conquer and exploit the late developer, causing some late developers to collapse. The technological gap between early developers and late developers also tends to widen over time. In this sense, the historical or the feedback factor discussed by Sachs can be broadly placed within the institutions or governance view, since it involves the issue of how to govern the political and economic relationships among today's nation states, which at some point in history were colonies and colonizers.

Although Sachs (2003) recognizes that institutions matter, he warns that the characteristics of institutions do not explain everything. He is critical of those studies that attribute most development problems to institutions, at the expense of geography and resource constraints. He sees this as oversimplifying the issue of development by resorting to a single factor explanation. He warns of the danger of an institution argument that would relieve rich countries of the financial responsibility for the poor, because development failures are the result of institutional failures rather than lack of resources (Sachs 2003: 38). Sachs emphasizes the roles of combating AIDS, TB, malaria, of addressing the depletion of soil nutrients, and of building more roads to connect remote populations to regional markets and coastal ports. He criticizes some economists (Acemoglu et al. 2001) who declare malaria has a limited impact in Sub-Saharan Africa because most adults have some acquired immunity, as completely neglecting the true negative impacts of the disease on local investment return, and raising the transaction cost of migration, trade and tourism. In general, constraints due to the physical environment and geographical isolation are still a large part of the developmental problem in places such as Sub-Saharan Africa and some other developing countries such as the Andean countries of Latin America (Gallup 2000). Sachs calls for development thinking that recognizes that both institutions and resource endowments are critical, not just one or the other (Sachs 2003: 41). In his latest work (2005), Sachs lists factors that are responsible for countries failing to grow economically. Unfavorable physical geography is listed equally with other factors such as governance failure, cultural barriers, and unfavorable demographic conditions.

The approach that emphasizes both geography and institutions in shaping development is to a certain extent a parallel to the traditional Possibilist perspective in cultural ecology. Originating from the French school of geography, especially Lucien Febvre and Paul Vidal de la Blache, and extended by Americans Bowman and Carl Sauer (Barton and Karan 1992; Holt-Jensen 1988; Martin and James 1993), this perspective holds that while the environment certainly both constrains and enables human activity, it is possible for people to choose from many courses of action and even to alter their environment in various way depending culture. Carl Sauer espoused the principle that the same environment could have very different meanings to people depending on their attitudes, objectives, and level of technology. Current landscapes could be seen to be the result not just of nature, but also of repeated and varying cultural impressions over time. For Sauer any separation of environment and human activity was flawed since they exist in a recursive relationship that varies both temporally and spatially (Barton and Karan 1992; Holt-Jensen 1988; Martin and James 1993).
III. Geography through Governance

It is understandable that less favorable physical conditions may delay development or even cause underdevelopment, but less developed economies also exist in places where natural conditions favorable to development in some measure failed to lead to an advanced economic status today. Such a paradox is sometimes labeled the “resource curse” (Engerman and Sokoloff 2005). At the heart of the resource curse hypothesis is a more sophisticated perspective that sees the role of geography through institutions. Specifically, geography may exert impacts on institutions, which further affects development. This view recognizes a subtle relationship, instead of simple competition or coexistence, between geography and institutions.


Even many institutionalists, though advocating economic development as determined by institutions, also recognize the role of geography in shaping development through changing institutions. Rodrik et al. (2004), Rodrik (2002) and Rodrik and Subramanian (2003) adopt a scheme to show the relationship between income, geography, and institutional factors where they consider endowment and productivity as endogenous factors, trade and institutions as partly endogenous factors, and geography as an exogenous factor affecting economic performance and income. The reason that institutions are considered only partly endogenous is recognition of the role of geography in institutional building.
Institutionalists contend that geography and the environment's impacts on economic development operate through long-lasting institutions. For example, environments where crops are most effectively produced using large plantations, will quickly develop political and legal institutions that protect large landholders from the many peasants and small landowners, and may even develop slavery as a way to accommodate the needs of the large landholders (Engerman and Sokoloff 1997; and Sokoloff and Engerman 2000). In places like this, even when agriculture is no longer the main economic activity, enduring institutions may still continue to inhibit competition and economic development for the majority of the population.
Similarly, the era of colonization laid the foundation for many countries' institutions today, which provides a natural experiment for the role of geography in shaping institutions (Acemoglu et al. 2001, 2002, and 2003). For example, in places with diseases which cause high settler mortality, or more prosperous settlements with high population density and urbanization, or with inhospitable germs and climates, colonizers established extractive institutions where a few settlers manipulated a local political power structure in order to exploit the material riches. On the other hand, in places with low population density, underdevelopment, hospitable hosting population and less local resistance, colonizers established settler institutions where European settlers moved in and established institutions similar to their home countries. The result is that in places with extractive institutions, a few elite tended to stay in power and the rule of law was not established. In contrast, in places where settler institutions were established, the rule of law, property rights, and democracy were eventually established. Such "Institutional Reversal" is largely responsible for the "Reversal of Fortune" where the originally more developed place became less developed while originally less developed regions became more prosperous (Acemoglu, et al. 2001, 2002, and 2003). According to this view, the institutional structures created by colonialists in response to environment endure even with the end of the colonialism. Thus, the institution view argues that the major impact of the environment on economic development runs through its long-lasting impacts on institutions. Most institutionalists do not completely deny the role of geography and the environment on economic development. However, they reject any claim for the direct role of geography. Instead, they trace the role of geography and environment through institutions (Easterly and Levine 2003).
Many researchers have found evidence of the role of geography in affecting institutions. For example, Hall and Jones (1999) associate the lack of development in tropical countries with the fact that Europeans did not settle in the tropics and thus did not bring high quality institutions to these areas. Here the point is that it is not the tropical environment per se, but the lack of high quality institutions, that hinders development. Acemoglu et al (2001) suggest that European settlement in North America, Australia, and New Zealand created institutions to support private property rights and limit the power of the State. On the other hand, Europeans did not settle in Congo, Burundi, the Ivory Coast, Ghana, Bolivia, Mexico, Peru, etc. They established institutions that empowered an elite to extract gold, silver, cash crops, etc. For Easterly and Levine, slavery was a way for Europeans to capture a labor force for extractive states, such as in the Caribbean and Brazil. Acemoglu et al notice that Pilgrims settled in the American colonies instead of Guyana partially because of the high mortality rates there. Similarly, Sokoloff and Engerman (2000) find that a Puritan colony on Providence Island off the coast of Nicaragua did not last long. Sokoloff and Engerman (1997) and Engerman and Sokoloff (2000) provide evidence to support a crop hypothesis. They argue that the land endowments of Latin America lent themselves to commodities favoring economies of scale, and/or the use of slave or local indigenous labor (sugar cane, rice, silver), and thus are historically associated with power concentrated in the hands of the plantation and mining elite. In contrast, land endowments in North America lent themselves to commodities grown on family farms (wheat and maize), and thus promoted the growth of a large middle class which helped spread power widely. Once the power structure was formed, the elite in Latin America created institutions that preserved their hegemony, such as restricting voting rights, public land and mineral rights distribution, and limiting access to schooling. Even granting new corporate charters favors those with (elite) insiders. These elite groups ultimately were opposed to democracy. In contrast, North America enjoyed a larger middle class with a less powerful elite, so that the United States and Canada created more open and egalitarian institutions featuring broader voting rights, equal protection before the law, wider distribution of public lands and mineral rights, lower entry barriers to businesses, and a big government effort to provide schooling. Differences in institutions between Latin America and North America also contributed to the larger European immigration flows to North America than to Latin America (Sokoloff and Engerman 2000). In general, the "resource curse" works so that favorable resource conditions end up fostering "wrong" institutions, which had long lasting negative impacts on development. The resource curse arguably occurred in Latin America (Engerman and Sokoloff 2005) and Australia (late 19th century and early 20th century) (McLean and Taylor 2001; McLean 2005). In the Middle East the resource curse occurs in the form of “external rentierism” (Selim 2003), where windfall income from oil export delays efforts toward industrialization and economic diversification. Many states become rentiers that thrive on a unique resource base instead of their own efforts toward innovation and technological advancement. Due to the state’s control of foreign exchanges, external rentierism also reinforces the role of the state in economic development, further weakening the private sector (Selim 2003).
IV. To Join or not to Join the Debate?

While human geographers are increasingly attributing various human geography phenomena to “culture” or institutions (the "culture turn," as current debates in human geography are often labeled), the economics community as a whole expands the realm of inquiry, examining the role of both institutions and the physical environment in shaping economic development. However, the diverging views in the debate among economists show that the intersection of geography and governance is an area that still requires further research. Nonetheless, the debate highlights several issues that may be relevant to future development in human geography. First, although “environmental determinism” seems to be a “dead horse” within the geography community, the debate obviously has not died in the larger academic arena. Can, and how can, geographers contribute to this debate in order to inform the academic community with what we know? In general, can human geographers join the debate concerning geography and economic development, in a way that contributes to as well as informs us of something new from the debate? Second, while recent human geography study increasingly looks at the role of institutions on the ecological environment, the debate among economists points to the effects of physical geography on institutions. Is this a sign that inadequate attention has been given to geography by geographers in pursuing the relevance of institutions and politics? Have geographers lagged behind in research issues that involve our own training? Third, methodologically, should we join the debate on our own term or on economists’ terms? The debate concerning “New Economic Geography” serves as a good illustration. While economists describe the new economic space in the language of mathematics, many criticisms of their conceptions from economic geographers are in literal forms and are descriptive in nature. It is hard to gauge to what extent the two sides have really convinced each other. Self-satisfaction within a familiar circle is one thing, but winning over an audience in a large arena is quite another. Similarly, most economists discuss the role of geography in economic development using statistical models while the rising tide of the “culture turn” has seen the recession of the use of statistical analyses in human geography. What would be the point of participating in a debate where the different sides use different “languages” and are not sure of whether we truly understand each other? The debate on geography and development among economists poses a challenge to human geographers. Whether and how we meet the challenge are the issues that are truly relevant to the future development of human geography.



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