On Monday, October 14, 2024, Daron Acemoglu, Simon Johnson, and James Robinson were awarded the Nobel Memorial Prize in Economic Sciences for their groundbreaking research on global inequality. Their studies revealed how historical institutions have played a key role in shaping the economic prosperity of nations today. The Royal Swedish Academy of Sciences honored the trio for their innovative work that helps explain why some countries thrive while others struggle with poverty.
Acemoglu, a professor at the Massachusetts Institute of Technology (MIT), and his colleagues, Johnson from MIT and Robinson from the University of Chicago, explored the economic impact of colonial institutions. They discovered that the structure of institutions established during colonization has long-lasting effects on the economic development of countries.
Their work argues that countries with inclusive institutions—ones that allow for broad economic participation and protect personal property rights—tend to prosper over time. Meanwhile, nations that relied on extractive institutions, which benefit a small elite while excluding the majority, often remain trapped in poverty. The researchers provided historical evidence showing how countries that embraced more democratic systems have experienced long-term growth, while authoritarian regimes lag behind.
Their work challenges the idea that colonialism affected all countries in the same way. Instead, they found that different colonial strategies led to drastically different outcomes. European colonizers who encountered densely populated regions tended to implement extractive institutions that concentrated power and wealth in the hands of a few. This created deep-rooted inequalities that persist to this day. Conversely, in regions with fewer inhabitants, settlers established more inclusive institutions that encouraged widespread participation in the economy.
One example the researchers often point to is the city of Nogales, which sits on the border between Mexico and the United States. The northern part of the city, located in Arizona, is far wealthier than the southern part in Mexico. Despite sharing a similar climate, culture, and geography, the two parts of Nogales have vastly different economic fortunes. According to Acemoglu, Johnson, and Robinson, this is due to the different political and economic institutions governing each side. Northern Nogales benefits from the inclusive institutions of the United States, while southern Nogales has suffered under less inclusive systems in Mexico.
Their research also helps explain what they call the “reversal of fortune” between regions. For example, during the colonial period, places like the Aztec empire in Mexico were far wealthier and more advanced than North America. However, today, the United States and Canada are economic powerhouses, while Mexico lags behind. The researchers attribute this shift to the different institutions established by colonizers. While the Aztec empire had centralized, authoritarian control, the early settlers in North America created more inclusive, democratic systems, which eventually paved the way for greater economic success.
Their book, Why Nations Fail, written by Acemoglu and Robinson, brought these insights to a global audience and is often cited as a key text in understanding global inequality. The book argues that political institutions matter more than geography, culture, or natural resources in determining the success of nations. Countries with inclusive institutions allow for innovation, investment, and economic participation, while extractive institutions stifle growth and create long-term poverty.
In their more recent work, Acemoglu and Johnson explored the impact of technology on inequality in their book Power and Progress. They argue that while technological advances can lead to economic growth, they can also widen the gap between rich and poor if the benefits are not shared equally. Their work emphasizes the importance of creating policies that ensure technology benefits society as a whole, rather than just a small elite.
The Nobel committee praised their research for offering a deeper understanding of one of the world’s most pressing issues—inequality between nations. “Reducing the huge differences in income between countries is one of our time’s greatest challenges,” said Jakob Svensson, chairman of the economics prize committee. He credited the laureates for their “groundbreaking research” that has helped explain the root causes of why some nations succeed while others fail.
Despite the praise, their work has sparked debates in academic circles. Some researchers argue that culture plays a bigger role in economic development than Acemoglu and his colleagues suggest. Others believe that geography and natural resources are more important in determining a nation’s prosperity. However, their focus on the importance of institutions has shifted the way economists and policymakers think about inequality.
At the award announcement, Acemoglu emphasized the importance of democracy in creating long-term economic success. “Broadly speaking, the work that we have done favors democracy,” he said. While he acknowledged that democracy is not a “magic solution” to all problems, he argued that inclusive political systems create better economic outcomes in the long run.
The laureates also highlighted the instability of authoritarian regimes. While countries with authoritarian governments may experience rapid economic growth in the short term, their growth is often unsustainable and prone to collapse. “More authoritarian growth is often more unstable and less innovative,” Acemoglu explained.
Their research has not only deepened our understanding of inequality but also made the study of history and institutions “cool again,” according to Dani Rodrik, an economist at Harvard University. Their work has inspired a new generation of economists to look at how history shapes economic outcomes and has opened up new avenues for understanding the challenges faced by developing nations.
Acemoglu, Johnson, and Robinson’s research offers hope that by reforming institutions, even countries that have been left behind can find a path to prosperity. Their Nobel Prize win is a recognition of their contribution to one of the most important issues of our time.
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