The linked working paper comes from the London School of Economics and explores the effects of geography on a country’s ability to trade internationally. It seeks to show mathematically that geographical location has a significant effect on the per-capita income of nations and may also explain why companies often choose not to move their production to countries where they could hire cheaper labor.
The two main geographical characteristics that can help or hinder a country’s trading ability are distance from its trading partner and access to a coast. What has been found is that the median land-locked country’s shipping costs are more than 50% higher than those of the median coastal country’s shipping costs and a coastal country can expect higher income per-capita of roughly 60% than a land-locked country. However, geographical distance from a trading partner affects a country’s ability to trade only so far as it affects a country’s access to a market or supplier. Basically the actual distance between two countries is not as important as what is in-between them. This is not to say that distance does not factor in though, just that it is not as consequential.
The paper ends by essentially saying that while their models show that geographic location is working against developing countries’ ability to improve, their models are centered on current locations of manufacturing and spending and as new markets and areas of production appear a country with a poor geographic location for trading may find itself in an advantageous geographic location for trading. I think that although I cannot attest to the actual effectiveness of their models, the publishers of this working paper are still correct in their conclusions. Throughout history the countries with the most access to other parts of the world have thrived the most. From Rome to England, the empires with the largest reach were also usually the most economically sound and wealthy. It makes sense then that geographic location would have a large effect on modern nations’ per-capita income and general economic well-being.
This study is quite interesting. Is there a correlation between a country's terms of trade and how they are situated geographically? Such as in the aggregate a land locked country will run a trade deficit in comparison to a country with access to a coast? Also you mentioned in the study that the model was mathematical in nature? Do you know exactly what math models were used in determining their data?
ReplyDeleteI think the author is supposed to get some mathematical prove what the link has given involved in this article, that would make this article more worth to read. Although, the author refers to examples throughout history, whereas, it is much more expected to mention several cases in modern society, especially during the latest 50 years. Overview, world changed a lot after World War II, so far as to the latest 13 years after 911, therefore, we are supposed to focus on emerging economies more than before.
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ReplyDeleteJust so everyone realizes, the link to the paper is the title of the post. Just click on it and a new tab with the paper should open. I know there was some confusion about this.
ReplyDeleteThanks for your explanation.
DeleteThis study is very intriguing. It's a bit mind boggling that a country and it's people can be affected simply because of where they are geographically located. While it makes a lot of sense, it is still fascinating that a country can be much worse off than another not because of political leadership or education but simply because of their location.
ReplyDeleteI really like the way this paper makes a mathematical connection to a relatively common sense idea that a country's location determines how much costs are affected and who they trade with. What surprises me is the fact that landlocked countries have 50% higher shipping costs compared to coastal countries. I'm interested to see if these costs would be even higher in countries with mountains, as Michael states that "distance between two countries is not as important as what is in-between them." I guess that it may be reasonable to conclude then that some countries may not even trade certain goods that they produce, even at a comparative advantage, due to costs that are based on their geographical location.
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