Geography on Poverty

  Gallup, Sachs and Mellinger’s paper between the correlation of geography and poverty reminds

us economists that we must be careful not to overlook certain factors. These factors, which affect

growth (both positively and negatively) range from institutions, historical background, industrial base

and many more. The usually disregarded factor, in this case, is geography.

According to Adam smith, he predicted that geography would play a huge role in the long-run

growth of the economy. This is because geography affects economic development in three major ways,

through transportation (cheaper in sea), endemic diseases (more prevalent in tropical zones) and

agricultural production (staple food productivity is greater in temperate zones). In reality, these

advantages of the temperate regions and coastal areas might seem insignificant, but compounded

through the years it becomes drastic. Such is the difference between developed countries now and

developing countries.

Of the three major factors, I believe that the coastal geographic factor plays an important but

least explicit role. Diseases and agricultural productivity are easy to spot as they are factors that increase

population. A healthy society and stable food source allows society to focus on other things namely

invention and innovation. But what does a coastal area have to offer?

The paper mentions the ease of trade. This is because it is simply cheaper to travel using sea

transport than by land. That’s it? It sounds discountable, but consider it in terms of how prices of

commodities are set. In economics, the cheaper cost of transporting commodities through sea-trade

translates to cheaper transaction costs. Transactions costs refer to the expense incurred in making an

exchange. For example, when you are buying a shirt. There are implicit expenses that you incur for,

getting the information regarding what shirt to buy, knowing where to buy it, by traveling to get there

etc. The expense beyond the shirt itself is the transaction cost. The implications of transaction costs

could be broad. For instance it could increase the price of a specific commodity by adding the

transportation cost to the price of the commodity. Remember why it is always cheaper to by straight

from the source? Buying a commodity from the factory itself may release you more transaction costs

compared from buying in a retailer store (usually). Too much transaction costs could also distort prices.

This is because, the productivity of an area, let say Mindanao, is counter-acted by the distance to its

market, in this case Manila. Products from Manila sold in Manila would be cheaper in transaction costs

which might not reflect the true productivity of Mindanao.

So what are the benefits then? Prices are reduced which allows people to buy more. With the

increase in purchasing power but lower prices, consumption could increase. We know that national

income has a component of consumption; hence it could increase our GDP. Plus, we should remember

that we are compounding the benefits in the long-run. The money saved could be invested again

somewhere, or could be used to consume more. There could be gratuitous amounts of possibilities

which could emerge from this.

Of course this is only normative economics. In the Philippine context, we absolutely have

geography of coastlines and sea. We are an archipelago, but it does not mean it can be advantageous.

Why? Because there are other factors affecting the movement of commodities in our country. Locally, it

some economists believe that land transportation is better in our country, because the implementation

of “roro” system was inefficient. First of, the quality of the boats are substandard. There are multiple

break-downs which causes delays for transportation. Secondly, the “roros” have to jump from one place

to another which could slow down travel since it is indirect. And third, the infrastructure of our sea-

trade is not as well developed. Sea-ports being polluted and congested are some of the things we have

to work on.

I believe that our country could benefit from our geography, but getting there would be another

story. We have to analyze what system would work for us and how we can implement it better. We

should also learn from our mistakes. Mistakes like the tragedies of Sulpicio Lines are examples of wake-

up calls that we need to change the status quo. State institutions play a big-role for no matter how

ingenious a solution could be, like the “roros”, without proper implementation instead of reducing

transaction costs we are actually increasing it.