Spatial linkages

“Everything is related to everything, but near things are more related to each other.”This first law of geography formulated by Waldo Tobler (1970) is frequently ignored in empirical growth analyses at the country level. Most growth models abstract from geographic distance by effectively treating countries as randomly distributed in space or as isolated islands. The aim of this chapter is to explore the importance of geographic distance for the growth of national economies. If you have a rich neighbor, are you more likely also to be rich? Similarly, if your neighbors grow quickly, are you more likely also to experience strong growth?

The lack of attention to distance in growth empirics is surprising, since distance features prominently in the gravity models used in the analysis of trade and migration. If a country has reached a high income level relative to its neighbors, this could potentially induce it to outsource activities to low-cost neighbors, thereby driving up income there.

Recently, theoretical growth models have made use of spillovers to explain economic growth: A country's GDP growth rate depends on the growth and income levels of other countries. Similarly, the literature on the “distance to frontier” focuses on technological distance to the world leader and the diffusion of technology from the leader to the followers. As outlined in chapter 3 on GDP, the further a country is below the level of the world leader or the world average, the more it is supposed to benefit from spillovers. However, this literature is usually not concerned with the position of the leader in geographic space and with the distance that the spillover effects have to travel. An exception is Keller (2002), who shows that the benefits of spillovers decline with distance in 14 OECD countries and that the amount of spillovers is halved after about 1200 kilometers.