There is no doubt that geographic factors, such as latitude and climate, are highly correlated with development, but the interpretation of this correlation remains hotly debated. While some of the effects of geography may operate directly on current productivity, there is mounting evidence that much of the correlation operates through indirect mechanisms, i.e. through the historical effects of initial geographic conditions on the spatial distribution of human characteristics, such as institutions,human capital, social capital and cultural traits, affecting income and productivity over the long run… a small set of geographic variables (absolute latitude, the percentage of a countrys land area located in tropical climates, a landlocked country dummy, an island country dummy) can jointly account for 44% of contemporary variation in log per capita income, with quantitatively the largest effect coming from absolute latitude (excluding latitude causes the R2 to fall to 0:29). This result captures the flavor of the above-cited literature documenting a strong correlation between geography and income per capita.
Other scholars, in contrast, claimed that geography affects development indirectly through historical channels, such as the effects of prehistoric geographic and biological conditions on the onset and spread of agriculture and domestication (…), and the effects of crops and germs on the settlement of European colonizers after 1500. Jared Diamond (1997) famously argued that the roots of comparative development lie in a series of environmental advantages enjoyed by the inhabitants of Eurasia at the transition from a hunter-gather economy to agricultural and pastoral production, starting roughly in 10,000 BC (the Neolithic Revolution). These advantages included the larger size of Eurasia, its initial biological conditions (the diversity of animals and plants available for domestication in prehistoric times), and its East-West orientation, which facilitated the spread of agricultural innovations. Building on these geographic advantages, Eurasia experienced a population explosion and an earlier acceleration of technological innovation, with long-term consequences for comparative development. According to Diamond, the proximate determinants of European economic and political success ("guns, germs, and steel") were therefore the outcomes of deeper geographic advantages that operated in prehistoric times. The descendants of some Eurasian populations (Europeans), building on their Neolithic advantage, were able to use their technological lead (guns and steel) and their immunity to old- world diseases (germs) to dominate other regions in modern times - including regions that did not enjoy the original geographic advantages of Eurasia.
These empirical results provide strong evidence in favor of Diamonds hypotheses, while suggesting that the geographic component of the story is empirically more relevant than the biological component. … restricting the sample to the Old World … the effect of geography… rises to 64%… highly consistent with Diamonds idea that biogeographic conditions matter mostly in the Old World.
In addition to providing strong support in favor of the Malthusian view that technological improvements impact population density but not per capita income in pre-industrial societies, the results in Ashraf and Galor (2011), … add an important quali er to the Olsson and Hibbs (2005) results. They show, not only that an earlier onset of the Neolithic transition contributed to the level of technological sophistication in the pre-industrial world, but also that the effect of Diamonds biogeographic factors may well operate through the legacy of an early exposure to agriculture… the observed correlation between geographic variables and income per capita are unlikely to stem from direct effects of geography on productivity. In contrast, they point to indirect effects of geography operating through long-term changes in non-geographic variables… ruggedness has a negative direct effect on agriculture, construction and trade, but a positive historical effect within Africa because it allowed protection from slave traders.
… differences in factor endowments across New World colonies played a key role in explain different growth patterns after 1800, but that those effects were indirect. Different factor endowments created substantial differences in the degree of inequality in wealth, human capital, and political power, which, in turn, were embodied in persistent societal traits and institutions. Societies that were endowed with climate and soil conditions well-suited for growing sugar, coffee, rice, tobacco and other crops with high market value and economies of scale ended up with unequal slave economies in the hands of a small elite, implementing policies and institutions that perpetuated such inequality, lowering incentives for investment and innovation. In contrast, a more equal distribution of wealth and power emerged in societies with small-scale crops (grain and livestock), with bene cial consequences for long-term economic performance.
In other words, the reversal of fortune is a feature of samples that exclude Europe and is driven largely by countries inhabited by populations that moved there after the discovery of the New World, and now constitute large portions of these countries populations - either European colonizers (e.g. in North America and Oceania) or African slaves (e.g. in the Caribbean). These regularities suggest that the broader features of a population, rather than institutions only, might account for the pattern of persistence and change in the relative economic performance of countries through history… A populations long familiarity with certain types of institutions, human capital, norms of behavior or more broadly culture seems important to account for comparative development.
Interestingly, Comin, Easterly and Gong (2010) also fi nd that the effects of past technological adoption on current technological sophistication are much stronger when considering the past history of technology adoption of the ancestors of current populations, rather than technology adoption in current locations, using the migration matrix provided in Putterman and Weil (2010). Hence, Comin, Easterly and Gongs results provide a message analogous to Putterman and Weils: earlier historical development matters, and the mechanism is not through locations, but through ancestors - that is, intergenerational transmission.
It is important to stress again that while effects of genetic distance point to the importance of intergenerational links, they are not evidence of direct effects of speci c genes or genetically transmitted traits on income or productivity. Rather, genetic distance captures genealogical relations between populations, and hence differences in traits that are transmitted vertically from one generation to the next through a variety of mechanisms, biologically but also culturally, as well as through the interactions of the two inheritance systems (gene-culture co-evolution).