Daron Acemoglu, Simon Johnson, both of the Massachusetts Institute of Technology (MIT), and James Robinson of the University of Chicago, were awarded the 2024 Nobel Memorial Prize in Economic Sciences.
They received the prestigious honor for their pioneering research on the vast gaps in prosperity between nations and the role of societal institutions in shaping economic progress.
Their work has contributed significantly to the understanding of global inequality by combining theoretical frameworks and empirical data, helping to explain why some nations flourish economically while others remain trapped in poverty.
According to the Nobel committee, the laureates’ findings underscore the importance of institutions — the rules, norms, and structures that govern societies — in determining long-term prosperity.
Jakob Svensson, chairman of the economics prize committee, remarked, “Reducing the vast differences in income between countries is one of our time’s greatest challenges. The laureates have demonstrated the importance of societal institutions for achieving this.”
BREAKING NEWS
The Royal Swedish Academy of Sciences has decided to award the 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Daron Acemoglu, Simon Johnson and James A. Robinson “for studies of how institutions are formed and affect prosperity.”… pic.twitter.com/tuwIIgk393— The Nobel Prize (@NobelPrize) October 14, 2024
The research conducted by Acemoglu, Johnson, and Robinson delves into the historical roots of institutions, especially those introduced during European colonization. They argue that the institutional frameworks set up by colonial powers in different regions have had a lasting impact on the economic trajectories of former colonies.
Their work highlights the contrast between “inclusive” institutions, which promote broad participation in economic and political life, and “extractive” institutions, which concentrate power and wealth in the hands of a few.
Acemoglu explained the nuanced nature of their research during a news conference: “Rather than asking whether colonialism is good or bad, we note that different colonial strategies have led to different institutional patterns that have persisted over time.”
The authors’ work demonstrates how inclusive institutions pave the way for long-term prosperity, while extractive ones may offer short-term gains to those in power but ultimately hinder widespread economic development.
The laureates’ research also touches on the role of democracy in fostering inclusive institutions. “Broadly speaking, the work that we have done favors democracy,” said Acemoglu, although he cautioned that democracy is not a “panacea.”
He emphasized that while democracy can be challenging to introduce, it is often the best pathway to sustained, inclusive economic growth.
At the same time, Acemoglu acknowledged that some non-democratic regimes have been able to achieve short-term economic gains by rapidly tapping into national resources, though such growth is often unstable and less innovative in the long run.
Their research points to the dangers of authoritarianism, where economic progress may be short-lived and concentrated among elites, lacking the broad-based innovation needed for sustained development. They argue that the key to stable, long-term growth is the establishment of inclusive institutions that promote equal access to resources, opportunities, and political power.
One of the central ideas in the laureates’ work is the concept of the “reversal of fortunes” caused by colonialism. During European colonization, densely populated regions were often ruled by authoritarian institutions, while sparsely populated areas saw more settlers who introduced relatively inclusive governance structures.
Over time, this dynamic has led to surprising reversals in economic prosperity. For example, while the Aztec empire was more prosperous than early North America at the time of colonization, today the United States and Canada far outstrip Mexico in terms of wealth and development.
“This reversal of relative prosperity is historically unique,” the Nobel committee explained. The researchers have pointed out that regions that were not colonized do not show the same pattern of economic reversal, further highlighting the enduring influence of colonial institutions.
An illustrative example is the city of Nogales, which straddles the border between Mexico and Arizona. Northern Nogales, governed by U.S. institutions, is more affluent than its southern counterpart in Mexico, despite the shared culture and geographical proximity.
According to Acemoglu and Robinson, the driver of this disparity lies in the differences in institutional frameworks that govern the two halves of the city.
The laureates’ research has not only reshaped the field of economics but also found a broad audience through their books.
Acemoglu and Robinson’s book, Why Nations Fail, explores the institutional reasons behind the success or failure of nations, while Power and Progress, co-authored by Acemoglu and Johnson, delves into the interplay between institutions, technology, and inequality.
Daron Acemoglu, long considered a top contender for the Nobel Prize, expressed his delight upon receiving the award. “You dream of having a good career, but this is over and on top of that,” he said during a press conference, while Johnson, the former chief economist at the International Monetary Fund (IMF), shared that he was “surprised and delighted” upon hearing the news.
Their recognition is celebrated across the academic world, with Dani Rodrik, an economist at the Harvard Kennedy School, noting that the laureates had “revived and made cool again the study of institutions in mainstream economics.”
