Making Inferences about Tropics, Germs, and Crops: One of the long-running arguments in growth is "geography versus institutions". A lot of ink and a tiny amount of computing power was thrown at this question. The early stages of this involved a lot of cross-country regressions that attempted to figure out empirically whether measures of institutions or geography had explanatory power for GDP per capita. (By the way, I'm talking here just about the economic growth literature's take on this. The general question goes back centuries.)
A tweet by Garett Jones recently reminded me of one of the entries in this literature, Bill Easterly and Ross Levine's "Tropics, Germs, and Crops" paper. EL want to assess the role of geography in explaining cross-country incomes per capita. Their main questions are summed up nicely in the abstract.
Does economic development depend on geographic endowments like temperate instead of tropical location, the ecological conditions shaping diseases, or an environment good for grains or certain cash crops? Or do these endowments of tropics, germs, and crops affect economic development only through institutions or policies?
Their conclusion is that geography has no effect, other than through its relationship to institutions. This conclusion, though, doesn't follow from the empirical tests they run. Let's run through the empirics on these questions, and see how to answer them.
I'm going to do this with precisely the dataset that EL use. I don't recall when or where I picked up the data, but I believe it was from Easterly's old website, where he had a nice set of links to datasets. Regardless, it's the right dataset because I can perfectly replicate their results. ...