The 2024 Nobel Prize in Economics was awarded to three distinguished economists, Daron Acemoglu, James A. Robinson, and Simon Johnson, whose research has fundamentally transformed our understanding of why some countries achieve sustained economic growth while others remain impoverished. Their work focuses on the critical role played by institutions in shaping economic outcomes, arguing that governance structures, enforcement of property rights, and the curbing of corruption are at the heart of long-term development. Acemoglu, a Turkish-born professor of economics at the Massachusetts Institute of Technology (MIT), Robinson, a British political scientist and economist teaching at the University of Chicago, and Johnson, a professor at the MIT Sloan School of Management, share a long history of collaboration. Their research has not only shed light on the economic trajectories of nations but has also sparked debates and critiques about their methods, assumptions, and implications.
At the core of their work lies the distinction between “inclusive” and “extractive” institutions. Inclusive institutions encourage broad participation in economic opportunities, foster competition, and provide incentives for innovation. They protect property rights, promote the rule of law, and ensure accountability of those in power, thus creating an environment conducive to growth. In contrast, extractive institutions concentrate power in the hands of a small elite, allowing them to control resources, stifle competition, and prioritise their own interests over the common good. This, in turn, suppresses economic potential and often results in stagnation or decline.
The trio’s most renowned work is their 2012 book, “Why Nations Fail: The Origins of Power, Prosperity, and Poverty.” The book explores the root causes of economic divergence, attempting to answer the question: Why do some nations prosper while others fail? Contrary to arguments that emphasise geography, culture, or natural resource endowments as key determinants of success, Acemoglu and Robinson argue that institutions are the driving force behind economic development. They contend that nations succeed when their political and economic systems create incentives for broad-based participation and innovation while constraining the ability of elites to extract wealth for their own benefit.
One of their most influential contributions to the field of economics is their 2001 paper, “The Colonial Origins of Comparative Development,” published in the American Economic Review. This study examines the impact of European colonisation on the development trajectories of countries in Asia, Africa, and the Americas. Acemoglu, Robinson, and Johnson argue that the institutional frameworks imposed by colonial powers had a long-lasting impact on economic outcomes. In regions where European settlers established permanent colonies, they implemented inclusive institutions that prioritised the rule of law, property rights, and democratic governance. Examples include North America, Australia, and New Zealand, where settlers built systems that promoted equality and opportunity. In contrast, in regions with harsh climates or hostile disease environments, such as much of sub-Saharan Africa and parts of South Asia, colonisers imposed extractive institutions designed to exploit local resources and populations. These systems, they argue, created deep-rooted inequalities and stifled development, the effects of which are still visible today.
While Acemoglu, Robinson, and Johnson’s research has been celebrated for its insights and empirical rigour, it has also attracted significant criticism from various scholars and economists. One major point of contention is the issue of causality. Critics question whether strong institutions are truly the cause of economic growth or whether they emerge as a result of economic success. Scholars at institutions like Harvard and Yale have pointed to examples such as South Korea, Taiwan, and Singapore, which achieved rapid economic growth under authoritarian regimes. These nations transitioned to more inclusive systems only after experiencing substantial development, suggesting that economic success can precede institutional reforms rather than the other way around. Similarly, China’s unprecedented growth over the last few decades, despite its lack of democratic institutions and political freedoms, poses a significant challenge to the laureates’ arguments. The Chinese model suggests that state-led development and centralised governance can also drive economic progress, raising questions about whether inclusive institutions are as universally necessary as Acemoglu and Robinson claim.
Another critique concerns the historical interpretation of colonialism in their work. While the laureates argue that the quality of institutions established by European colonisers largely determined economic trajectories, critics contend that this perspective oversimplifies the exploitative nature of colonial rule. In regions like Africa and South Asia, colonial powers imposed extractive systems designed to maximise resource extraction and maintain dominance. These systems often destroyed pre-existing social and economic structures, leaving behind legacies of poverty, inequality, and weak state capacity. Some scholars argue that Acemoglu, Robinson, and Johnson’s framing risks legitimising certain colonial systems by attributing positive outcomes in settler colonies to the establishment of “good institutions” while overlooking the violence, displacement, and systemic exploitation inherent in the colonial enterprise.
Moreover, their focus on institutions as the primary driver of development has been criticised for reflecting a Western-centric bias. By emphasising capitalist institutions, property rights, and market-driven economies, their work aligns closely with the principles of liberal democracy and free markets. Critics argue that this perspective fails to account for alternative models of growth, such as state-led development in East Asia. For instance, in countries like China, state intervention and centralised decision-making have played a central role in driving economic growth and poverty reduction. Mushtaq Khan, a professor at the School of Oriental and African Studies (SOAS), argues that the laureates’ findings largely reflect institutional quality as measured by Western-designed indexes. According to Khan, these indexes may not capture the diverse pathways through which nations achieve development, particularly in non-Western contexts where state capacity, technological advancements, and human capital often play a more significant role.
In addition to these criticisms, some economists question the empirical evidence supporting the laureates’ conclusions. While there is no denying that governance and institutional quality are important for economic outcomes, establishing a direct causal relationship remains difficult. Reliable data on institutions and their impact on economic performance are often limited, and the interplay between political systems, economic growth, and societal factors is complex and multifaceted. Critics argue that while the laureates’ work provides valuable insights, it may oversimplify the mechanisms driving development and understate the importance of other variables such as geography, technological progress, and cultural factors.
The relevance of Acemoglu, Robinson, and Johnson’s research is particularly evident in the context of developing countries like Bangladesh. Over the past two decades, Bangladesh has emerged as one of the fastest-growing economies in the world, with significant achievements in poverty reduction, education, and industrial development. However, the country’s institutional framework remains a critical challenge. Bureaucratic inefficiencies, widespread corruption, and weaknesses in regulatory systems often hinder business operations, discourage investment, and limit the scope for sustainable growth. The recent wave of protests and public dissatisfaction in Bangladesh highlights the urgent need for governance reforms and greater institutional accountability.
While Bangladesh has made significant strides in economic growth, its experience demonstrates the importance of institutions in ensuring that progress is both equitable and sustainable. Without improvements in transparency, rule of law, and anti-corruption measures, the risk of stagnation remains. The lessons from Acemoglu, Robinson, and Johnson’s research serve as a reminder that economic development is not simply about achieving growth but about creating systems that ensure long-term prosperity for all citizens.
Despite the critiques, the Nobel Prize awarded to Acemoglu, Robinson, and Johnson represents a significant milestone in the study of economic development. Their work has reshaped our understanding of the role institutions play in driving or hindering progress, challenging economists and policymakers to prioritise governance, accountability, and inclusivity. While the debate over causality and alternative development models continues, their research provides a valuable framework for examining why some nations succeed while others fail.
In conclusion, the 2024 Nobel Prize in Economics has brought renewed attention to the importance of political and economic institutions in shaping the fortunes of nations. While Acemoglu, Robinson, and Johnson’s work has been widely celebrated, it has also sparked significant debate and criticism regarding causality, historical interpretation, and ideological bias. Their findings remain a valuable contribution to the field, offering insights that are particularly relevant for developing nations striving to overcome institutional weaknesses and achieve lasting prosperity. As economists and policymakers continue to grapple with the complexities of growth and governance, the work of this year’s laureates will undoubtedly inspire future research and shape global economic discourse for years to come.
