Geography and economic policy


The Economist has an interesting look at the problems of countries without a coastline. Given the greater expense this loads onto international trade this makes those countries poorer. From which we can derive two interesting points:

With a few exceptions the world’s 45 landlocked countries are poor. Of the 15 lowest-ranking countries in the Human Development Index, eight have no coastline. All of these are in Africa, which is a poor region. But even compared with similar sea-front countries those without coastlines have lagged behind. Their GDP per person is 40% lower than that of their maritime neighbours.

The first and most obvious of these being that this is proof that international trade enriches a place not, as the autarkists would have it, impoverishes. Pleases that find it more difficult to trade are poorer than thoise who find it easier: pretty good evidence that all that import substitution malarkey is indeed that, malarkey.

The second is a policy point. The total trade barrier in and out of any economy is not just the tariff barrier. Nor is it the regulatory plus the tariff one. It's the costs of transport plus the tariff plus the regulatory. Thus, if you find yourself with high transport costs as a result of he above geography you should therefore be trying to be even more free trade in your regulatory and tariff attitudes. Because, as above, more trade makes you richer.

And interesting example of this is the US economy after the Civil War. Tariffs were raised considerably. This is often used as an example of a country developing successfully behind such trade barriers. But this coincided with the development of cheap ocean going steam ship transport. The total trade barriers into the American economy actually declined in this period. Late 19th century US development is an example of more trade leading to more development. We can check this too: trade did indeed rise considerably, despite those raised tariffs. And traded items converged in price across the Atlantic in this period: price convergence being a signal of freer trade.

The import substitution argument insists that some level of autarky makes places richer. The real world says that people with higher trade costs become poorer. We prefer to take our evidence from the real world, amazingly enough.