Tropical Economics

Many economists have observed that wealth is systematically lower in the tropics than elsewhere (Sala-i Martin, 1997; Nordhaus, 2006). Determining why this is remains a major puzzle. Leading hypotheses include, inter alia, the tropics’s disease burden (Gallup, Sachs and Mellinger, 1999), biota available for domestication (Diamond, 1997), distance from trading partners (Frankel and Romer, 1999), colonial (Acemoglu, Johnson and Robinson, 2001) and other institutions (Easterly and Levine, 2003), average temperature (Nordhaus, 2006), distance from sources of technology (McCord and Sachs, 2013), and frequency of natural disasters (Hsiang and Jina, 2014). In fact, so many factors set the tropics apart that it is now common in cross-sectional analyses to use a country’s latitude as a proxy for unobserved tropical determinants, although latitude is never itself considered to have fundamental importance as a “deep parameter”. We point out that latitude may have fundamental economic consequence because it plays a key role in how countries experience geophysical processes that have economic implications. Because the earth is spherical and spins rapidly on its axis, irregular variations of Pacific ocean temperatures, known as the El Niño-Southern Oscillation (ENSO), have distinctive environmental consequences throughout the tropics. ENSO drives large annual fluctuations in local temperature and rainfall throughout the tropics—which are known to have significant influence on various economic outcomes (Dell, Jones and Olken, 2014; Burke, Hsiang and Miguel, forthcoming)—but it is