Institution vs Geography

Topics: Economic growth, Economics, Per capita income Pages: 7 (2215 words) Published: February 23, 2013
Essay Question 2 ‘Why are tropical countries so poor?’
* Overview
Why are there such large differences in productivity across countries? Tropical countries are typically much poorer than countries with temperate climates. Why? Is there something intrinsic to the climate or geography that can explain this? Or is it because these countries have unsuitable political and economic institutions that have their roots, perhaps, in colonial history? Assessing the relative importance of geography and institutions matters for development policy. The emphasis placed on ‘good governance’ by institutions such as the World Bank, rests on the view that institutions matter a great deal. If it could be shown that this was wrong, and that the direct effects of geography mattered most, then more emphasis on mitigating these effects would be justified (e.g. mosquito nets or, in the limit, migration).


Why are there such large differences in productivity across countries? The textbook answer would be : it’s because of accumulation of capital and technological progress. But if we go one “why” further it becomes more complicated. Why certain societies managed to accumulate capital and gain technological progress faster than others? We are going to focus on the two main theses on this matter, geography and institutions. Is only one valid? Do they grow as pairs? Have the same importance? We will first study geography, looking if it does or not impact on economic development, and if it does by what means. We will adopt the same reasoning for institutions.

It is important to define what we mean by tropics since it doesn’t fit the strict geographical sense. Sachs (2001) explains it very well: “More useful definitions of the tropics rely on ecological or climatic characteristics as opposed to latitude. Of course there are a large number of alternative classification systems, based on temperature, precipitation, growing season, natural vegetation cover, and other characteristics. In general, tropical zones are defined by high year round temperatures and the absence of winter frost.” A simple look to a GDP per capita map is telling. With few exceptions (that can be explained easily through recent history) most of the temperate countries are rich while most of the countries in the tropics are poor. On average an individual living in a temperate country is 4.5 times richer than his fellow human being living in a tropical country (Sachs, 2001). This disparity can even be noticed within countries, with the most temperate part having an edge on its sub-tropical/tropical counter-part (China, Brazil, United-States etc.) (Sachs, 2001).Starting with these basic observations, what geography features gave some countries an edge, and how these features have unfolded through human history to create this gap between temperate and tropics? The geography thesis is probably the oldest one. It was thought that the land and, more importantly, the labor force were inherently less productive in the tropics (Montesquieu, 1750). This approach seems simplistic and dangerous nowadays. Indeed this thesis can be considered racist “Approach the south, you will think you are leaving morality itself”, Montesquieu (1750), and is, therefore, tackled with precaution. The geography thesis regained a lot of popularity with the publication of the bestseller Guns, Germs and Steel: The Fates of Human Societies (1997) by Jared Diamond. It totally denied the racist idea, while giving an all-in-one answer from the birth of human societies to nowadays. It is explained that the difference in wealth between countries is due to geography. Thanks to better climate, better domesticated animals and crops, more fertile soils some societies had an initial food production advantage. The ones with temperate climate and on the Eurasian continent were able to...

Bibliography: * Acemoglu, D., S. Johnson and J. Robinson (2001), ‘The Colonial Origins of Comparative Development: An Empirical investigation.’, American Economic Review, 91, December.
Acemoglu, D. ( 2003), “Root Causes: A historical approach to assessing the role of institutions in economic development.” Finance and Development, Vol. 40, No. 2, pp. 27-30.
* Acemoglu, D., S. Johnson and J. Robinson (2004), ‘Institutions as the fundamental causes of Long-Run Growth’ NBER working paper no. 10481
Diamond, Jared (1999) Guns, Germs and Steel: The Fates of Human Societies
Easterly, W and R. Levine (2002), ‘Tropics, Germs and Crops: how endowments influence economic development’, NBER working paper no. 9106.
* Montesquieu (fr: 1748, eng: 1750). The Spirit of the Laws
Rodrik, Dani and Arvind Subramanian
Rodrik, Dani, Arvind Subramanian and Francesco Trebbi (2004) “Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development.” Journal of Economic Growth, Vol. 9, pp. 131-165
Rodrik, D
* Sachs, J. D. (2001). Tropical Underdevelopment, NBER working paper no. 8119
Sachs, J
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