Geography, Demography, and Early Development

Geography, Demography, and Early Development

This paper presents a growth model where survival is endogenously determined and the abundance of natural resources affects the returns to labor. In geographic regions where natural resources are initially more abundant and the climate is relatively more hospitable, survival odds are higher. Higher life expectancy prompts parents to devote more of their resources to old-age consumption and enjoyment. Consequently, they invest relatively more in the quantity and quality of their offspring. Investment in education, together with population growth, eventually triggers technological progress. As the level of technology improves and life expectancy rises along with it, a geographically advantageous economy enters a post-Malthusian regime during which both fertility and educational attainment increase. Eventually, the rising returns to education leads such an economy to a demographic transition during which life expectancy continues to rise and parents have fewer but more educated children. In regions where geography is more adverse, this transition does not take place and economies remain trapped in the Malthusian regime. Accounting for the role of geography in development, therefore, helps to link demographic transition to geography and shows that geography affects the economy mostly indirectly through its impact on households' decisions and demographics. It also provides a framework with which to assess why geography may matter less today.

There is a recent debate about the role of geography versus that of institutions in economic progress. This debate revolves primarily around whether geography or institutions account for cross-country differences in economic prosperity, and there is a growing body of evidence to shed doubt on a direct geography effect.¹ Nonetheless, most findings to date are consistent with the view that geographic characteristics were important in the emergence of agriculture and early development. Hence this paper presents a unified economic growth theory that focuses on geography in the very long run. By doing so, it links early development and demographic transition to geography and shows that the major effects work indirectly through the impact of geography on households’ economic decisions and demographics. The framework presented also provides an assessment of why geography may matter less today.

The 20th century witnessed an astounding change in the standards of living in the Western Hemisphere. Conservative estimates show, for example, that the average income in the United States rose tenfold in the last 125 years. Sharp increases in educational attainment, improvements in life expectancy, and significant declines in fertility and mortality also characterized this period of rapid wealth accumulation in “Industrialized countries.”

Two facts make this progress all the more remarkable: First, there exist huge disparities in economic conditions across the world today. A highly publicized estimate by the World Bank shows, for example, that roughly one billion people still live on less than one dollar a day.² And the per capita incomes of rich industrialized nations are roughly 25 times those of the poor sub-Saharan African economies. The existing wide gap in the cross-country income distribution is, for the most part, a manifestation of the sustained economic progress that took place in Europe and some of its offshoots in the last century. Second, human existence for the most part was synonymous with misery. Even after human societies settled down to create the first agrarian economies around 10,000 B.C., living conditions did not change significantly.