Economic geography is the study of the widely varying economic conditions across the earth. The economics of a geographical area can be influenced by climate, geology, and socio-political factors. Geology can affect resource availability, cost of transportation, and land use decisions. Climate can influence natural resource availability (particularly agriculture and forestry products), and working conditions and productivity. The social and political institutions that are unique to a region also have an impact on economic decisions.
These aspects of economics were noted by Adam Smith in The Wealth of Nations and have also been studied by modern economists like David Landes at Harvard University and the 20th century economist Ellsworth Huntington.
This can be contrasted with spatial economics or locational economics which looks at these questions from a microeconomic perspective. Instead of ascribing locational decisions to geography, it typically uses more abstract variables like distance or travel time. Economic geography has fallen out of favour in recent decades with most economists switching to "spatial economics" methods.
Ellsworth Huntington, a professor of economics at Yale University in the early 20th century noted that the Northern, cold regions like the U.S., Britain, Europe and Japan had large, well-developed economies while the hot, tropical countries were less well endowed—the so-called equatorial paradox. Huntington ascribed the differences in economic performance to differences in climate. Many economists are uncomfortable with this idea.
According to Huntington, these differences in economic performance also affected political structures—tropical states tend to have unstable political histories.
Other factors in this model affecting economic performance are access to the sea and the presence of raw materials like oil. Singapore, for example, occupies a key position as a seaport, while the wealth of Saudi Arabia depends almost entirely on oil.
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