David N. Weil (Brown University)
Vernon Henderson (London School of Economics) — Adam Storeygard (Tufts University) — David N. Weil (Brown University)
The effect of physical geography on the level of economic welfare is a topic with a long pedigree. Theoretically, while geography should obviously affect population density, its effect on income per capita is ambiguous. In a Malthusian model, for example, population size adjusts so that the standard of living is equalized across regions. The same is true in the presence of free migration. Empirically, there are clear geographic correlates of income per capita, such as latitude, but whether there is a structural effect of geography on income, or whether the correlation is induced by something else (for example, the historical influence of geography on institutions) is unclear. In this paper we take several steps aimed at sorting out this issue. We start by examining the determinants of population density at a fine geographic scale within countries, a context in which institutions vary much less than they do between countries. We show that fitted values projected from this exercise, suppressing country fixed effects, predict both population density and income per capita across countries. We also construct a new measure of population density, called personal population density (PPD), based on weighting geographic areas by the number of people who live there. We show that a measure of predicted PPD outperforms a predicted conventional measure of density in explaining income differences across countries. We then turn to explaining why geography -- even purged of the effect of institutions -- predicts income per capita. We show that across countries, better predicted geography is correlated with an earlier date of economic takeoff, and also with an earlier onset of the demographic transition. Further, countries with worse geography experience larger increases in their population over the course of demographic transition. By the time the whole world has completed its demographic transition, population will have shifted significantly toward places with worse geography.