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Landlocked Countries and Growth

Sam Vaknin, Ph.D. - 8/3/2008

Macedonia has consistently ranked lowest in Europe in a variety of economic dimensions: from FDI to productivity. Its endemic poverty is the inevitable outcome of multiple factors: its corrupt and incompetent political elite; rent-seeking businessmen; primitive banking system; bankrupt education system, and so on. But, one important factor usually goes unmentioned: Macedonia is landlocked, it lacks access to the sea.

In April 1998, John Luke Gallup and Jeffrey Sachs, published a seminal study titled "Geography and Economic Growth". The two eminent development economists concluded that " location and climate have large effects on income levels and income growth through their effects on transport costs, disease burdens, and agricultural productivity."

Even more crucially, geographical constraints seem to affect economic policymaking. Thus "populations that are located far from coasts and navigable rivers and that thus face large transport costs for international trade, as well as of populations in tropical regions of high disease burden" are automatically disadvantaged. To these we must add the effects of inferior natural endowments and the impact of lack of access to natural resources (such as water, or oil) on growth.

As Irene Botosaru points out in another paper titled "Geography, Demography, Trade, and Economic Growth", geographical determinism is again in fashion among economists. Her recommendations:

(Landlocked countries) "should export more manufacturing goods rather than agricultural raw materials ... (and) would profit from improved political relations with their transshipping partners, from improved information and physical infrastructure, as well as from increased population density in urban areas and in areas close to the border with transshipping countries."

In other words, good relations with Greece should be the cornerstone of Macedonia's economic policies. The current jingoism is not only ridiculous, coming from a tiny nation, but it is also detrimental to economic growth and future prosperity.

All told, lacking access to sea lanes or large rivers "shaves" 0.7-1 percent off GDP growth every year. As these percentages accumulate, poverty is the outcome. till, what's new? Centuries ago, Adam Smith, wrote in "the Wealth of Nations":

"“As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast… that industry of every kind… begins… and it is… not till a long time that those improvements extend themselves to the inland parts of the country.”