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Location, Location, Location
The curse of distance isn’t going anywhere.
In 1966, Australian historian Geoffrey Blainey coined the phrase “the death of distance” to describe how modern technology was undermining the importance of geography. But though shoppers in New York can now easily buy fruit from Guatemala or furniture from China, new research suggests that far-flung countries are still doomed, to a large extent, by their location.
Two economists at the Organization for Economic Cooperation and Development (OECD), Alain de Serres and Hervé Boulhol, measured how distance from centers of economic activity and natural resources affected the GDP of industrialized countries between 1970 and 2004, using data for trade and shipping costs. The researchers found that, at least for OECD countries, economic growth is still significantly affected by remoteness from major economies.
In the most extreme cases of Australia and New Zealand, distance has reduced annual GDP per capita by more than 10 percent relative to the OECD average, according to their study, published this year in the Journal of Economic Geography. In centrally located Belgium, by comparison, proximity to European markets is responsible for a nearly 7 percent higher GDP per capita.
Strikingly, these figures were largely unchanged between 1970 and 2004. For other countries the distance effect also remains in place, though it is much less severe. The United States takes about a 0.3 percent hit for its distance from Europe and Asia, while Canada gets a 2.1 percent bump from its proximity to the United States.
Even China’s economic rise hasn’t much helped geographically challenged Australia and New Zealand. Whether Australian goods are traveling 5,500 miles to Beijing or 7,500 miles to Los Angeles, it doesn’t alter the fundamental fact that these goods have to travel a long, long way to reach customers.
The authors don’t see this condition changing anytime soon. “We’ve had quite a bit of technical progress in transportation, but distance still matters,” says de Serres — and it will, until there’s a way to email steel.