Nobel Prize in Economics Awarded to Three Economists for Research on Institutional Impact on Prosperity

 

On Monday, October 14, three distinguished economists, Daron Acemoglu, Simon Johnson, and James Robinson, were honored with the Nobel Prize in Economics for their groundbreaking work on how institutions shape a country's economic success or failure. The trio will share the prestigious award, which includes a cash prize of 11 million Swedish kronor (approximately $1 million).

The Nobel Committee commended their research for shedding light on why "societies with weak rule of law and exploitative institutions fail to achieve growth or positive transformation." The committee referenced the economists' findings on the lasting impact of colonization, explaining that in some regions, colonizers created systems that exploited local populations, while in others, they established the foundations for inclusive political and economic structures.

The laureates' work highlights the importance of developing "inclusive institutions," which respect the rule of law and protect property rights, for fostering long-term prosperity. In contrast, nations with "extractive institutions," designed to benefit a select elite by draining resources from the majority, have struggled with sustained economic stagnation.

This prestigious prize, officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was created in 1968 by Sweden's central bank. It differs from the original Nobel Prizes established by industrialist Alfred Nobel in fields such as physics, chemistry, medicine, literature, and peace.

Last year, the prize went to Claudia Goldin, a Harvard University professor, for her research on women in the labor market.

Acemoglu, a Turkish-American professor at the Massachusetts Institute of Technology (MIT), and Robinson, a British professor at the University of Chicago, are best known for their 2012 book Why Nations Fail. In the book, they argue that differences in political and economic institutions explain why some countries thrive while others remain impoverished. The book illustrates their theory by comparing two towns named Nogales—one in Arizona, USA, and the other in Sonora, Mexico—where despite similar climates, culture, and geography, vastly different institutions have led to starkly different living standards.

In 2023, Acemoglu and Johnson, a British-American professor at MIT, published Power and Progress, a study examining how technological advancements over the past 1,000 years, including AI, have often disproportionately benefited elites rather than creating widespread prosperity. They caution that "the current trajectory of AI is neither beneficial to the economy nor democracy."

When asked if their research equates democracy with economic growth, Acemoglu responded that while democracy can support economic progress, it is not a universal solution. He also emphasized that authoritarian growth models are typically unstable and lack the capacity to foster sustained, innovative advancements.

Acemoglu and Robinson previously argued that China's economic growth would struggle to last due to its lack of inclusive institutions. While China's investments in AI and electric vehicles have posed a challenge to this theory, Acemoglu maintains that authoritarian regimes are likely to face greater difficulties in achieving long-term, sustainable innovation.