How the World Became Rich. Mark Koyama
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p. 23) find that improved market access had a direct effect on population growth. Had there been no improvements in transportation, there would have been 25 percentage points less urban growth between 1680 and 1831 and 97 percentage points less growth from 1831 to 1851. These are enormous numbers. They indicate just how important transport improvements were for the growth of the British and US economies.
Donaldson (2018) employed a similar methodology to examine the building of railroads in India under the British Raj. Transport investments made it possible to transport bulky goods such as wheat and rice over land as much as twenty times faster than had been possible with pre-industrial technologies. The railroad network thus brought regions of India out of near autarky, integrating them with the rest of the country and the world.
Infrastructure investments can help overcome the “curse of geography.” But they can also have unforeseeable, counter-productive effects in the long run. For instance, prior investments in transport can lock countries into particular, and potentially inefficient, economic configurations. A fascinating example of such lock-in comes from the western part of the Roman Empire. Michaels and Rauch (2018) contrast England with France. In France, Roman city locations remained settled throughout the early Middle Ages. Michaels and Rauch show that while this may have benefited French economic growth in the early medieval period, it harmed it in the long run. Because French cities were placed with access to Roman roads in mind, they were inferior from the point of view of subsequent economic development, where water travel dominated. In England, however, the urban network was reset following the collapse of the Roman Empire. This allowed medieval English cities to relocate along coasts and rivers that were more beneficial for economic activity in subsequent centuries (see Figure 2.9).
Geography and Industrialization
This chapter opened with the question: is geography fate? We have shown that geography is not fate, but there are important instances where it undoubtedly matters for economic outcomes. The final question we address in this chapter is: can geography help explain why and where the Industrial Revolution took place? Can the logic of Diamond’s argument in Guns, Germs, and Steel be used within Eurasia to explain why industrialization first took off in Western Europe and not China, the Middle East, or elsewhere?
Within Eurasia, it has been suggested that Europe’s geographic position made it more likely to discover the Americas and benefit from Atlantic trade (Fernández-Armesto, 2006). Within Europe itself, however, access to the Atlantic
Figure 2.9 Location of cities in England and France in the Roman and medieval periods
Data source: Michaels and Rauch (2018).
was a mixed blessing. Acemoglu, Johnson, and Robinson (2005b) studied the impact of Atlantic trade on European economic development. They found that the discovery of the Americas and the development of new trade routes had varying effects on economic growth, depending on the society’s political institutions. In other words, geography played a role in determining economic outcomes via its effect on institutions. Where long-distance commerce was already controlled by the crown, access to the Atlantic strengthened royal power. Two prominent examples of this are Charles V and Phillip II, who ruled Spain for most of the 16th century. Access to the Atlantic – and all of the wealth flowing from South American mines – allowed them to dispense with representative institutions. Thus, while Spain was initially enriched by the Americas, the long-run impact on economic growth was negative, since it resulted in more extractive institutions. In contrast, where monarchs lacked the ability to control or monopolize long-distance trade (such as in England or the Dutch Republic), the discovery of the Americas strengthened the merchant class and enabled them to constrain royal power. We discuss this point in more detail in Chapter 7.
Perhaps the most direct impact of geography on economic growth is through the availability of natural resources. Nef (1932) demonstrated that 16th-century England faced an energy crisis as the charcoal supplied by local forests could not meet the demands of a growing urban population. Coal relaxed this constraint. Sure, English coal had been there long before the 16th and 17th centuries. But the demand for it was not. Once the steam engine was vastly improved in the late 18th century, cheap coal from the north of England (see Figure 2.10) allowed the British economy to harness vastly more energy than had previously been possible (Allen, 2009a, 2011b).
Figure 2.10 The price of energy in the early 1700s
Data source: Allen (2011b). (BTUs = British Thermal Units.)
Building on this argument, Wrigley (1989, 2010) argues that without coal there would have been no Industrial Revolution. Specifically, he distinguishes between an organic economy (in which energy is extracted from human or animal muscle or from wood) from a mineral economy (in which energy stored up over millions of years becomes available for human use). Productivity is always bound to be low in an organic economy. Coal permitted Britain to escape from the constraints of an organic economy. Wrigley acknowledges that the presence of coal alone did not guarantee that it would be exploited. But without coal, industrialization would have been impossible.
In his now famous contribution to the Great Divergence debate, Pomeranz (2000) argued that British industrialization relied crucially on the proximity of coal deposits to the new industrial centers and on resources from the Americas. Traditional forms of energy such as timber were land-intensive. In comparison, coal yielded more power per unit of land. New crops from the Americas, notably the potato, increased the productivity of land in northwestern Europe. Natural resources shifted Britain and northwestern Europe from a labor-intensive path of economic development into an energy-intensive and innovative development path. For Pomeranz, access to the New World (and slavery)
offered what an expanding home market could not have: ways in which manufactured goods created without much use of British labour could be turned into ever-increasing amounts of land-intensive food and fiber (and later timber) at reasonable and even falling prices. Precious metals enabled Europeans to trade with Asia. Without silver it is difficult to imagine another European good being exported as much.
This argument has been challenged. After all, China had abundant coal deposits. So did the Ruhr Valley in Germany. The question of whether they were located close to industrial centers is perhaps the wrong one to ask. In Britain, industrial towns grew where coal was plentiful and energy cheap. It was also possible to transport coal cheaply by sea from Newcastle to fuel London’s demand for energy.
Mokyr (1990) argues that coal was unlikely to have been decisive, for a variety of reasons. First, the Industrial Revolution was broader than steam power, and even steam power did not absolutely require coal. Water power was an important substitute. Had coal been more expensive, innovators would have had an incentive to economize on it and develop alternative energy sources. The supply of coal was highly elastic (Clark and Jacks, 2007). This implies that coal production expanded as demand for coal increased with industrialization. By this account, the expansion of coal output could have occurred in earlier decades had there been demand. In other words, had Britain had no coal, this would not have prevented industrialization. Coal would simply have been imported from Ireland, France, or elsewhere in Northern Europe. This would have been costly, but the additional costs were unlikely to have been decisive for Britain’s industrialization. This speaks against Pomeranz’s claim that the supply of coal was a binding constraint for industrialization to take place.
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