The Royal Swedish Academy of Sciences has awarded the 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Daron Acemoglu, Simon Johnson, and James A. Robinson for their influential studies on how institutions are formed and their impact on societal prosperity.
This year’s laureates have highlighted the critical role of societal institutions in determining a country’s economic success. Their research emphasizes that societies characterized by weak rule of law and exploitative institutions fail to foster growth or improvement. Through their work, they provide valuable insights into why some nations flourish while others languish in poverty.
The legacy of European colonization plays a pivotal role in their findings. As European powers colonized vast territories, the resulting institutional changes varied widely. In some regions, the focus was on exploiting indigenous populations and extracting resources for colonial benefit. In contrast, other areas saw the establishment of inclusive political and economic systems aimed at the long-term welfare of European migrants.
The laureates argue that these historical institutions have lasting consequences for contemporary prosperity. Countries that adopted inclusive institutions during colonization tended to experience long-term economic growth, while those trapped in extractive systems struggle to improve. This dynamic helps explain why former colonies that were once prosperous now face significant challenges.
However, the path to change is often obstructed by existing power structures. Extractive institutions may provide immediate benefits for the elite, making them resistant to reform.
As long as the political system favors those in power, promises of economic change are met with skepticism from the populace. The laureates assert that this lack of credibility hampers progress and can even lead to stagnation.
Interestingly, the laureates also shed light on the conditions that may spur democratization. In situations where the ruling elite face revolutionary threats, they may be compelled to placate the masses by promising reforms. Yet, skepticism about their intentions persists, often necessitating a transfer of power to establish genuine democracy.
“Reducing the vast differences in income between countries is one of our time’s greatest challenges,” notes Jakob Svensson, chair of the committee for the prize in economic sciences. “The laureates have demonstrated the importance of societal institutions for achieving this.”
The 2024 laureates have contributed significantly to our understanding of the disparities in prosperity across nations. Their groundbreaking work underscores that persistent differences in societal institutions are a crucial factor in explaining why some countries thrive while others struggle.
The wealthiest 20% of the world’s nations are now approximately 30 times richer than the poorest 20%. Despite some progress among impoverished countries, the income gap remains stubbornly persistent. This year’s laureates have identified institutional differences as a key explanation for this enduring divide.
Establishing a direct link between institutional quality and prosperity poses challenges. A mere correlation does not imply causation; rich and poor countries differ in numerous respects beyond their institutions.
To tackle this complexity, the laureates employed innovative empirical methodologies, ultimately revealing how institutional frameworks can influence economic outcomes.
In summary, Acemoglu, Johnson, and Robinson’s groundbreaking research not only enhances our understanding of economic disparities but also emphasizes the necessity of fostering inclusive institutions as a pathway to sustainable development.
