Transportation Costs and Trade

The comments section of Megan McArdle’s post “Whither Iraqi Oil?, which I mentioned yesterday, has had an interesting conversation going on. One of the commenters, Patrick Sullivan, made a crucially important point about both the role of transportation costs and the role of trade in creating prosperity (regardless of whether or not you have lots of natural resource deposits):

Africa’s comparative poverty is largely the result of not having navigable rivers and natural harbors (Europe’s coastline is actually longer, because of its irregularity, than Africa’s).

Knowledge gets exchanged–along with goods–when unlike people trade with one another. Water transport being cheap, civilizations first grew around ports and on rivers. While highland regions were notoriously backward, but that’s changing with modern telecommunications and the internet.

The problems with the Middle East are largely that they aren’t trading nations. And what trade does go on–oil–is controlled by oligarchs not by private profit maximizing actors. U.S. military intervention can change this, just as it did in 1945 in Japan.

Controlled by oligarchs and not by profit-maximizing actors. Absolutely. Patrick’s insights also apply to Venezuela and its current turmoil.