Geography and Economics

How the geography of a country determines its historical economical development

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you discovered an earth like planet with a telescope so powerful that you could see where the oceans, rivers, landmass and mountains are, but not what the cities look like, could you still predict where the wealth and poor countries are?

Likewise could aliens peering at the earth, seeing the major geography, but being incapable of actually viewing the people, our buildings and lifestyles, be able to guess where the wealthy and poor countries are located?

Both Jared Diamond in his book Guns, Germs and Steel as well as Adam Smith in his book The Wealth of Nations, describe the importance of geography in long term economic development, but from different perspectives. Adam Smith was the founding father of free market economics, while Jared Diamond is a bit harder to pigeon hole as he is both an ecologist, geographer, biologist and anthropologist.

If you look at the made up landmasses I’ve shown below, could you guess which of these would likely experience the most rapid economic progress and which ones the slowest?

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Made up countries or landmasses with different geography. Judging by just the geography, which ones would see most rapid economic development? Total land area and population assumed to be the same.

All of these landmasses are made up of the same number of small squares so they are equally large. We may assume that resource distribution and population distribution are initially the same. Over time the distribution of population will start diverging.

I will predict the following ranking in economic development, from most successful to least successful: 4, 5, 2, 6, 3, 7 and 1.

Lets go through the many factors contributing to this conclusions, starting with perhaps the most important thing for all early economic development.

The Significance of Water Transport

In book 1, chapter 3 of the Wealth of Nations, Adam Smith among many other things discuss significance of water transport, with respect to economic development.

He compares transportation of good from London to Edinburgh in Scotland by land transport with sea transport. He notes that.

  • A wagon with 2 men and 8 horses, can transport 4 tons.
  • A sail-ship manned by 6–8 men, can transport 200 tons the same distance.

If we do the math, we’ll find that water transport carries as much as 50 wagons, 100 men and 400 horses. That is a staggering difference.

I found a direct comparison of was difficult, since I had no idea of one would rate the cost of horses relative to men. By googling I pieced together a rough estimate, from the following details.

In 1745, the cost of 10 maids per year was 33 British pounds, while a horse was said to require food worth 30 pounds. This suggest a 1–10 difference.

Maids however were at the lower end of the pay-scale. Data from the early 1800s suggests a coachman with 2 horses in London cost 200–300 pounds per year. While another source says a couch horse costs 2 pounds per week in upkeep.

cost per week * weeks per year = 2 * 52 = 104

A regular salary for a man at the time was 20–30 pounds.

(300 - 30)/2 = 135

So it seems reasonable to assume a horse costs about 100 pounds. If a workman’s salary is about 20, we get that

horse upkeep / workman salary = 100/20 = 5

A horse corresponds to about 5 men in terms of costs. Now we figure out how many men these 50 carriages corresponded to.

men + horses*5 = 100 + 400*5 = 2100

So the equivalent of 2100 men would be required for land transport compared to 6–8 men for sea transport. That makes sea transport 262–350 times more efficient than land transport. That is at the lower end of the scale. We also have to compare the cost of 50 wagons and one sail-ship. I’d venture to be that the sail ship requires less maintenance in total.

In my little guessing game, I’ve added some random towns or cities as red squares, and marked in dark gray, the areas accessible from the city. If we assume an extremely modest 4 tile advantage to sea transport, we get the outcomes below.

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Red marks a possible town, and dark gray marks the area accessible for trade and goods transport utilizing sea and land transport. Land allows travel of 1 square. Sea allows travel of 4 squares in this example.

We assume a city can transport economically goods square away while on land. At sea there should be a 300 times advantage at least, but I am being super conservative and giving sea transport 4 squares of free travel instead.

From this we can see the effects of geography. Any area close to a circle in shape, giving a small perimeter relative to area is bad. In case 1, you can see that the inland town has access to 3*3 = 9 tiles of resources, while the coastal town has 2*2 + 2*4 = 12 tiles of resources accessible.

The town in case 2, with an internal lake, has access to 4*4 + 3 = 19 tiles.

In short what we see with the various examples is that the more coastline you have relative to landmass the better. That means thinner irregular countries, or ones with lots of rivers would be preferable overs those which look like big blobs. Many small rivers is better than a few big ones.

Estimation of Area Affected by Water Transport

Lets try to get an estimate of how big the advantage of water transport is. If you can transport goods at 1/300th of the cost with water compared to land, it means we can go 300 times further and fetch goods without increasing the cost of transport. That is effectively our radius in the whole circular area we may travel to assuming uniform transport costs.

Area of circle = πr² = π300² ≈ 300 000

So we got an area 300 000 times larger to deal with. We can transport resources and goods to any land found within this area cheaply. Covering this with lots of fords, islands or river deltas would afford most land access.

This gives a sense of why large cities in the past could only exist along rivers or on the coast. Transporting all the food and resources the city would need would be prohibitively expensive for an inland city by comparison. It also explains why farms for export would seek to be close to rivers, so they could easily deliver their goods to cities. Adam Smith observes:

In our North American colonies the plantations have constantly followed either the sea-coast or the banks of the navigable rivers, and have scarce anywhere extended themselves to any considerable distance from both.

He also observes how rivers, especially deltas, must have affected the creation of early civilizations such as Egypt:

Upper Egypt extends itself nowhere above a few miles from the Nile, and in Lower Egypt that great river breaks itself into many different canals, which, with the assistance of a little art, seem to have afforded a communication by water-carriage, not only between all the great towns, but between all the considerable villages, and even to many farmhouses in the country; nearly in the same manner as the Rhine and the Maas do in Holland at present. The extent and easiness of this inland navigation was probably one of the principal causes of the early improvement of Egypt.

How Does a Big Market for Goods Affect the Economy?

So we have established that water allows goods to be transported and traded over a huge area compared to land based transport. It is perhaps though not immediately obvious why that matters economically speaking. It might be obvious in present day, but less so in pre-industrial times.

Geographic Fluctuations in Harvest

Farmers, hunters or fishermen in an area might in periods catch or harvest more food than they can consume, and in other periods get less than they need. In times of plenty they might not be able to store this food. One did not have fridges or canning for most of human history. That meant food could easily end of rotting or spoiling before anybody else could enjoy it. Hence precious resources would go to waste.

With efficient transport one could ship surplus to other people and get something useful in return. When the catch or harvest was bad one could use money earned from this earlier exports to buy food to compensate for the bad harvest. Hence efficient water transport could even out yearly fluctuations in food production over a large area, and let a higher percentage of total production get utilized.

Division of Labour and Economics of Scale

However most important is probably one of Adam Smiths obsessions which is the division of labour. What we mean by that is that in a larger market there is more opportunity to specialize.

This is what Adam Smith observes at a workshop making metal pins. He is comparing 10 guys in a workshop working together making pins, with a single smith making a pin from scratch:

they make among them about 12 pounds of pins in a day. There are in a pound upwards of 4000 pins of a middling size.

Those 10 persons, therefore, could make among them upwards of 48 000 pins in a day. Each person, therefore, making a 1/10 of 48 000 pins, might be considered as making 4800 pins in a day.

But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made 20, perhaps not one pin in a day; that is, certainly, not the 240, perhaps not the 4800 hundredth part of what they are at present capable of performing

In short, through division of labour and specialization each man makes 4800 pins, while somebody doing it alone would make a maximum 20 pins a day. That is a 240 times productivity increase minimum.

We can easily observe this effect in everyday life. If you cook dinner, it doesn’t make much difference if you make dinner for one person or four people. A big slab of meat takes about the same time to fry as a small slab of meat. Of course the effort isn’t constant. Peeling 20 potatoes takes longer time than to peel 5. However the time it takes to cook 5 potatoes is the same as for 20.

Hence big productivity gains, does not rely exclusively on having e.g. steam engines or other mechanical contraptions to substitute human labour. Simply having cheaper transport, would increase the size of the market, which would again afford more specialization, which again would increase productivity significantly.

Long before there was an industrial revolution there was a transport revolution.

The Significance of Water Transport During the Dutch Golden Age

Having lived for 3 years in the Netherlands I have a special affinity for the Netherlands and fascination for dutch history. The history we are taught at school about the industrial revolution starts with Great Britain and the steam engine. However the precursor to that can very well be said to have been the Netherlands, and key to the Dutch economic miracle was water transport.

Because the water table was low in the Netherlands, digging canals was easy. This allowed the Netherlands to create a vast network of waterways, and hence cheap and efficient transport of large amount of goods internally in the country.

A good example of this effect was the digging of peat for fuel. Peat existed everywhere in Europe and could in principle be used anywhere. However without water transport large quantities of peat could not be transported.

J. W. de Zeew writes about peat and the dutch golden ageremarking on the hypothetical usage of horses for land transport of peat:

…then 1.5 × 64,000 = 100,000 horses should be layed directly to the charge of turf transport.

Simply feeding that many horses would have been a huge resource hog:

Ultimately, then the turf transport by road would have occupied 110,000 horses and, for their maintenance, the complete yield of market crops of 1.1 × 900,000 = 1 million ha or one third of the countries total area.

A huge number of men would also be required to to carry out this transport:

When as an average 1.5 men are reckoned per 2 teams of working horses, this would result in a labour requirement of 1.5 × 110,000/4 = 40,000 man-year for the assumed turf transport by road. From these figures it is clear why other countries, depending on road transport, could not draw on their peat deposits in the seventeenth century.

J. W. de Zeew concludes that the kind of scale of peat extraction seen in the Netherlands historically would have to be performed using waterways:

Keeping in mind that in the course of time people had to be employed in digging and keeping up canals and improving other water-ways, the total manpower involved in turf transport by water still would not have exceeded 1.5 × 4,000 = 6,000 man-years per year.

Due to access to cheap fuel, the Dutch acted in many ways a bit like modern day Japan. While it did not have much resources itself, it would import a lot of raw materials an process it using cheap fuel and windmills.

Under these conditions they could easily run industries based on thermal processes. Breweries, brick-, roof- and paving-tile, pipe-, stoneware- and faience-factories, salt refineries, madder- and chicory-works, bleachers, dyers and printers of textiles are all mentioned as being big turf consumers.38 Other users of turf were furnaces, kilns, cookeries, bakeries, distilleries, drying-houses and roasters and smelters processing a great variety of materials and products, even charcoal burners applying turf to heat their wood- stocks.

Thanks to the cheap fuel all these activities were able to produce goods that could easily compete on the international market. Add to this the cheap transport facilities by water, from which these products in their turn benefitted, and one has to expect a very profitable commercial climate along with the favourable industrial one, each pushing the other up.

Why was Britain the First Industrialized Country?

The story of how Britain industrialized has many parallels to the Netherlands.

While not equally favorable to canal digging, Britain also engaged in building a vast network of canals for transporting goods.

Britain had an advantage over the Netherlands, which was that it was an island. If you remember my discussion of optimal geometric shapes for economic development, Britain fit the bill quite well. Being an island rather than a section of a continent like the Netherlands increases coastal area. Britain is kind of long and spindly rather than blob shaped, which is also optimal.

Britain had hence probably the best land geometry for water transport of any country in Europe. Being an island gave another advantage over the Netherlands, which was that Britain could to a large extent ignore its land army and focus exclusively on maritime endeavors. The Netherlands could not as it was always at risk getting invaded by German states or France.

The final ingredient which made Britain industrialize before the Netherlands despite its early lead, was that fact that Britain had large coal reserves which the Netherlands did not.

Initially water transport would increase the size of markets in Britain, leading to ever more specialization and mass production. Initially water wheels would be used to power early factories, but this would uncover the potential for mass production using non-human labour leading to a push for steam power.

The Missing Industrial Revolution in China

China was for most of its existence far ahead of Europe in most endeavors, yet Britain and Europe ended up industrializing much earlier. This is a big topic I’d like to discuss in a future post, but for now I will concentrate on water transport.

The major rivers in China such as the Yangtze river gave many of the benefits as I’ve described earlier and was likely an good reason for the early arise of civilization in China.

However examining the geography and geometry of the Chinese landmass we can see it is less optimal compared to Europe. Europe has more rivers going in multiple directions, while China has a few large rivers going primarily in one direction. The landmass relative to coastal area is huge, while Europe has a high amount of coastline relative to land mass, being stretched out more thinly and being more irregular in shape.

The Worst Shaped Landmasses

If we were to look around the earth for a landmass which has high area, and small coastline relative to size, we would be hard pressed to find any landmass worse than Africa and Australia. Both are blob like, and have few rivers covering the land.

This means in both places transport would from early time have had to happen primarily by land, which would have limited ability to form concentrated settlements and achieve division of labour and economies of scale. So purely from a geometric analysis of landmass we should predict slow and poor economic development for Africa.

Orientation of Landmass

But actually it is worse than that. A perspective Jared Diamond covers in Guns, Germs and Steel, is the significance of the orientation of landmass.

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Landmasses of the same size but different orientation. Orientation matters as climate changes primarily vertically but not horizontally.

You might have wondered why I rated case 7, much lower than case 3. For smaller landmasses this is not that significant. But when you get to continent size, orientation matters a lot.

Horizontal orientation means, we get the same climate zone through most of the landmass. Vertical orientation means we get multiple climate zones.

That is bad, because technologies spread more easily through similar climate zones. Plants, animals, house building techniques, plowing techniques etc will vary with the climate zones. For instance people in northern Europe would likely build houses using wood, while southern europeans would prefer bricks or concrete. The wet heavy soil of northern Europe required the invention of the heavy plow to be utilized, while much simpler approaches were possible in Greece and Italy.

This caused problems in the Americas, with its primarily vertical landmass. Innovations happening in one place could not easily spread north-south. Africa also has this issue to a noticeable degree in addition to the large interior space relative to coastline.

An illustration of this problem mentioned by Jared Diamond as how the Bantu people in sub-saharan Africa had an organized agricultural economy with armies using iron weapons. This made it very hard for early European settlers like the dutch to settle their land. However South Africa presented an opportunity, as it had a different climate. The plants that the Bantu had could not grow in the milder climate there. Seeds that could have been suitable would have had to migrate across multiple climate zones, which seemed rather unlikely. Hence South Africa was thinly populated by hunters and gatherers without organized armies or metal weapons.

That made it possible for dutch settlers to land, and the dutch grain would grow there.

South Africa, is a relatively small landmass without any other connecting landmass with the same climate, from which people with compatible plants and technology for that climate could migrate to.

Significance of Size

While landmass with a high amount of coastline and rivers relative to area is beneficial, proximity to large areas matter. While Britain has a good geography, it would likely never have industrialized early had it been located far into the Atlantic ocean.

As Jared Diamond points out in Guns, Germs and Steel larger populations means higher probability of innovation, whether that is in tools, organization or domestication of plants and animals. It also means more opportunities for trade. By being close to Europe, Britain could get exposed to any idea or technology which developed in Europe. Europe in similar fashion is strategically located to be able to receive advances from the whole Eurasian continent and North Africa.

It is this proximity to large landmasses combined with locally optimal landmass which gives the ultimate advantage. Greece is connected to Europe, but it also have a lot of coastline relative to landmass, which made water transport cheap in that particular part of the Eurasian continent. Relative advantages of different forms of water transport would naturally shift as technology developed.

Initially water based transport in the form of rivers would have an advantage over ocean transport as humans lacked navigation skills. It explains why early civilizations flourished in areas such as China, Mesopotamia and Egypt. Of course fresh water and fertile soil adjacent to these rivers was of course of equal importance.

Navigating the waters outside of Greece and the mediterranean was likely a lot easier than the North Sea in Northern Europe, which partially explains why the next wave of advance civilizations tended to form around the Mediterranean.


Water transport has historically had 300:1 advantage over land based transport.

So for a given area to develop economically, this is a summary of the important factors:

  1. Be close to another large landmass, to benefit from trade and technology.
  2. Have a lot of coastline relative to landmass, meaning any landmass close to a circle in shape is bad.
  3. Many small rivers tend to be better than a few big ones.
  4. It is better with rivers in many different directions than all going in one direction, as this helps transport all over the country.
  5. The ability to dig canals easily, can be a big advantage to utilize water transport. The Netherlands and Britain being good examples.

Written by

Geek dad, living in Oslo, Norway with passion for UX, Julia programming, science, teaching, reading and writing.

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