Explained | Why Daron Acemoglu, Simon Johnson and James Robinson received the 2024 Nobel Prize in Economics

Three economists – Daron Acemoglu and Simon Johnson of the Massachusetts Institute of Technology, and James Robinson of the University of Chicago – set out to find answers, ultimately tracing economic disparities back to European colonialism.

On Monday, his groundbreaking research, which demonstrates a strong connection between strong institutions and national prosperity, was awarded the Nobel Prize in Economics.

“They have helped us understand the differences in prosperity between nations,” the Nobel Prize Committee noted. The Committee highlighted that partnerships with exploitative institutions fail to generate sustainable growth and meaningful change.

Their work comes at a time when global inequality is widening. According to the Global Inequality Database, the wealth gap is growing, and a recent World Bank report shows that the world’s 26 poorest countries face higher debt levels than at any time since 2006.

After studying European colonialism for more than two decades, Acemoglu, Johnson, and Robinson concluded that the political and economic institutions introduced during the colonial era still shape today’s economies.

A compelling example is Nogales, a city divided by the US-Mexico border. The American side, located in Arizona, enjoys relative prosperity, while the Mexican side lags behind economically.

Both parts of Nogales share the same geography, climate and demographics, but differ in their institutions. While the United States has built inclusive institutions that protect political rights and economic opportunities, Mexico’s history of Spanish colonial exploitation continues to hinder its development.

Three major conclusions from their study

1) Nature of the institutions

According to the trio, the nature of the institutions built by colonialists has played a role in shaping modern economies. Extractive institutions, designed to exploit local populations, stifled long-term economic growth, while inclusive institutions, which supported economic freedom and the rule of law, allowed nations to prosper.

2) Population density decides the institutional nature.

The institutional structure of the colonies was influenced by population density. Sparsely populated areas attracted more European settlers, who built inclusive institutions to support their communities. In contrast, densely populated regions saw the creation of exploitative institutions, as fewer settlers sought to extract wealth from the local population.

3) Institutional nature determines economic status

The extractive nature of colonial institutions, the 2024 winners argue, has turned regions that were rich during colonization into the poorest of the 21st century. They have called this phenomenon a “change of fortune.”

For example: India, once responsible for a quarter of the global economy, experienced systemic exploitation under British colonialism. On the other hand, the United States, which began as a settler colony, developed inclusive institutions that helped its long-term growth.

Review of the study

Acemoglu, Johnson, and Robinson have been praised for bringing historical analysis and institutions into the mainstream of economic research.

“Rather than asking whether colonialism is good or bad, we observe that different colonial strategies have led to different institutional patterns that have persisted over time,” The New York Times quoted Acemoglu at a press conference after the prize.

However, critics of US-based economists point out that the theory does not explain China’s economic rise. The country remains authoritarian and has “extractive” institutions. But China’s economy remains an engine of global growth, having expanded at an annual rate of more than 10 percent between 1979 and 2017.

In their best-selling book, “Why Nations Fail,” Acemoglu and Robinson attributed China’s three-decade growth story to “luck.” But Yuen Yuen Ang of John Hopkins University disagrees with their arguments and suggests more context-specific institutions rather than replications of Western models.

“Their idealized depiction of institutions is historically inaccurate,” he wrote in ‘X’ after Monday’s announcement, adding that researchers have had difficulty explaining why the United States prospered despite “being as corrupt as China is today.” .

Another important criticism of his study is its blatant Eurocentrism, which considers certain forms of colonialism positive. Such a view, critics argue, conceals the evils of colonialism on the native population.

“The most obvious and striking fact about settler colonialism is the qualitatively more violent process that was unleashed on indigenous populations, verging on and, in some cases, equivalent to genocide,” wrote economist Mushtaq H Khan in his article ‘Governance and growth: history, ideology’. and test methods.