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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.