Bolivia: Geography and Economic Development

Abstract

The purpose of this study is to identify the main relationship between economic development and geography at the province level in Bolivia. To achieve this, we study simultaneously the relationship between an index of basic needs insatisfaction (NBI), as a measure of human capital, and GDP per capita with geographical, demographical, institutional and structural economic variables. The estimation of GDP per capita for 112 provinces was carried out by estimating total wages based on employment surveys data and on GDP data available at the department level. The main findings of this study are: a) Geographical variables matter in the explanation of NBI, labor income and GDP per capita disparities among provinces, especially altitude, erosion, urbanization rate and the distance toward the main cities of the central axis of the country (La Paz, Cochabamba, Santa Cruz). The main channels for this are the effects of geographical variables on land and labor productivity. The location of mine resources also explains provincial disparities, and transportation costs matter concerning economic activity of the private sector. The effects of geography on labor productivity are widely influenced by people`s choice of province to live in, and this choice is strongly correlated with their education level. Bolivia is one of the poorest countries in Latin America; its development problems are complex and difficult to solve. As far as those developed in this research are concerned, we find that appropriate policies for promoting human development, migration and increasing land productivity can help to attain higher development levels and reduce provincial disparities.