Geography, Economic Structures and Institutions: A Synthesis

This paper develops a conceptual framework and presents three case studies that show how differences in economic structures are the fundamental cause of differences in economic development. This insight is derived from a synthesis of competing hypotheses. More complex products have higher barriers to entry, higher income elasticity of demand in export markets, are more conducive for technical change, support higher wages and profits etc. Moreover, a given economic structure gives rise to a particular distribution of income—an important source of de facto political power. The paper argues that a productive structure based on a wide mix of complex products engenders lower income inequality. This is consistent with the Kuznets-Lewis wave—changing income distribution as a consequence of structural changes. We use historical evidence to show that geography played a pivotal role in shaping economic structures and demonstrate that geography is still important in explaining the GuyanaBarbados divergence. Finally, the article argues that the mechanics of economic change or dynamic under-development are determined by the intensity of competition between de facto and de jure political powers and the resolution to this contestation.