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Economic Growth presentation written by Kiril Yovchev
Geography, Climate and Natural Resources
Introduction:
In this presentation we will show you the potential determinants of income:
geography, climate and natural resources, which are differing on countries. We will see
that these characteristics have a significant effect on income.
First of all, we will speak about geography, where the further the country is from
the equator the rich it is. Afterwards we will have a look on the climate. And at the end
we will show you the effects of natural resources, which are not a great constraint on
growth, because countries can import them from abroad.
Geography:
The geography is related with the positioning of the countries and also where the
population is spread out in the world map. The density of the population in the world is
very irregular, because everybody likes to live in a place with good conditions. So we can
say that the standard of living is based on the geographical situation.
We can present geography through the channels of international trade and recall
that one of the determinants of openness to trade is geography. A country’s geography is
unchangeable and if geography determines trades, it means that same countries have a
fundamental advantage over others. The most important geographical determinant of
country’s ability to participate in international trade is its proximity to the ocean. Because
ocean’s transport is cheaper than any other kind of transport and it influences
international trade. Access to trade explains the differences in income.
 Geographic concentration and spillovers
A look at the world map shows that wealthy countries tend to be near one another
and Europe is the best example. Possible explanation for this clustering is that it
reflects countries’ influence on their neighbors and also that nearby countries
share common characteristics that are important for growth.
 Geography’s effect on Government
Another way in which geography has been theorized to affect economic growth is
through its effects on the size of states as well as the conduct of government. The
most of the things are related to the history of the states.
Climate:
One of the most important aspects of a country’s geography is its climate – that is
the seasonal patterns of temperature, precipitation, winds and cloud cover. Earlier, we
noted the strong relationship between a country’s distance from the equator and its
income per capita. Because latitude is linked to climate, this finding suggests a role for
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Economic Growth presentation written by Kiril Yovchev
climate in determining income per capita. But climate does not depend on latitude alone;
factors such as prevailing weather systems, distance from the ocean, and altitude also
matter.
 Climate and Agricultural productivity
Differences in agricultural productivity among countries profoundly affect income
per capita. Measures of agricultural output per worker differ greatly between
tropical and temperate regions. Workers in wealthy, temperate countries produce
as much as 300 times the agricultural output of workers in poor, tropical
countries. Studies show that even when we account for differences in farm
machinery, fertilizer inputs, and the human capital of workers, agricultural
productivity in tropical countries is lower than in the temperate zone.
 Climate and Disease
Healthy people ca work harder and longer than unhealthy people; they can also
think more clearly. We see a strong correlation between health and income per
capita, because people in richer countries can afford better inputs into health. If
countries differ in their health environment, these differences will affect both
income and actual health. There is good evidence that the tropics constitute a bad
health environment so with diseases that are harmful to humans.
 Climate and Human effort
A final aspect of climate’s effect on economic growth is associated with the effort
that people put into their work. “People are more vigorous in cold climates.”
People in warm climates cannot work hard because they will overheat. People
must work slowly if they are to survive. The relationship between climate and
effort can be modified by technology. Humans, after all, are tropical creatures, but
with technological progress in the form of clothing, shelter and fire allowed to
humans to leave Africa and populate the rest of the planet.
Natural Resources:
Output is not produced by capital, labor, human capital and technology alone, also
needed are natural resources such as farmland, forests and minerals, which are combined
with capital and labor to produce output. It seems obvious that countries with more
natural resources per capita should be richer than those without resources.
 The relationship between Natural Resources and Capital
Until the 19th century, the most important natural resource for determining
economic growth was fertile land. The importance of land as natural resource is
not surprising because land was more significant than capital as a factor of
production before industrialization. The land rich countries were magnets for
immigration (in 1820’s some 60mln Europeans moved to the New World). Along
with this flow of labor came an inflow of European capital.
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Economic Growth presentation written by Kiril Yovchev
 Expectations for the Resource Curse
Many countries’ experience with natural resources has been surprisingly
disappointing. This negative experience has led some observers to conclude that
in the long run, the presence of natural resources can actually impede economic
growth – in effect, that there is a “resource curse”. Countries rich in natural
resources do not develop the cultural attributes necessary for economic success.
Three theories attempt to come to grips this phenomenon:
1) Over consumption – booms in income resulting from natural resources tend to
be temporary. The discovery of a new resource or a sudden increase in the
price of a resource will lead to a spurt in a country’s export earnings.
Resource booms seem to lead countries to raise their consumption to levels
that cannot be sustained once the boom ends.
2) Dynamics of Industrialization – natural resources distort the structure of an
economy in a way that produces short-run benefits but long-run costs. A
country with natural resources to export will import other products for its own
consumption. The effect of resources on a country’s economic growth will
depend crucially on the degree to which the exploitation of a natural resource
stimulates or impedes production in other sectors of the economy.
3) Politics – government policy can help to ensure that the windfall income from
a commodity boom is used for investment or put aside for a rainy day rather
than being used for consumption. Government police can be used to establish
forward and backward linkages between resource extraction and other sectors
of the economy. Governments can collect taxes on resource exports and use
this revenue to provide a public good such as infrastructure or to invest in
education.
Conclusion:
These three characteristics are particularly attractive as fundamental explanations
for differences in economic outcomes among countries. We have seen strong evidence
that geographic and climatic characteristics are related to countries’ economic outcomes.
In the case of natural resources, the evidence is much weaker.
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