Nobel Prize in Economics 2024

It is rare for scientific findings to be directly applicable to everyday life, but the research recognized by this year’s Nobel Prize in Economics can bring direct benefits to countries around the world where economic development is low and where, in order to promote development, it is necessary to increase the development of social institutions and provide the widest possible access.

The awardees all teach at universities in the USA, Daron Acemoglu: an economist of Turkish origin, and Simon Johnson, a professor at MIT, previously at the International Monetary Fund. James A. Robinson is a professor at the University of Chicago.

They received the prize because their work has had a major impact on economics and political science, and has contributed to understanding the relationship between economic development and prosperity.

In their research, the awardees examined how different social institutions (e.g., political systems, legal systems) affect economic development and well-being. They concluded that inclusive institutions that ensure property rights, the rule of law, and access to economic opportunities promote economic growth and prosperity.

These institutions encourage innovation, investment, and economic activity because people can trust that they will enjoy the fruits of their labor and do not have to fear expropriation or arbitrary exercise of power. Inclusive institutions also promote the development of human capital, as people have the opportunity to learn and develop, knowing that they can use their skills in society.

Conversely, institutions that restrict economic and political freedoms hinder development.

These institutions serve the concentration of power and protect the interests of the elite against the majority of the population. They restrict freedom of competition, the functioning of the market economy, and discourage people from investing and innovating. Extractive institutions often lead to corruption and the squandering of public resources, which further worsens economic prospects.

Acemoglu, Johnson, and Robinson support their theory with numerous historical and contemporary examples. They show that colonial past, geography, and cultural factors alone do not explain differences in economic development. Social institutions, which determine the incentives and opportunities for economic actors, play a much more important role.

For example, institutions inherited from the colonial past can significantly influence a country’s development. Colonies where European powers established inclusive institutions (e.g., North America) were more successful after independence than those where extractive institutions prevailed (e.g., Latin America).

The researchers emphasize that institutions are not static but can change throughout history. Social, political, and economic processes can transform extractive institutions into inclusive ones, which can promote economic catch-up. At the same time, inclusive institutions can also deteriorate if the political elite abuses its power and restricts economic and political freedoms.

The work of Acemoglu, Johnson, and Robinson has had a major impact on economics and political science, and has contributed to the understanding of economic development and prosperity. Their research highlights that good institutions are key to economic growth and social well-being. Their findings provide important lessons for policymakers who should strive to create and maintain inclusive institutions.