Nobel Prize in Economic Sciences 2024 is awarded to U.S based economists Daron Acemoglu, Simon Johnson, and James A. Robinson for their studies on how institutions shape national prosperity.
Key Work and Findings
- Focus: Importance of societal institutions for a country’s economic success.
- Definition of Institutions: The broad set of rules governing individual behaviour within a society or country.
- Two Types of Institutions:
- Inclusive Institutions: Characterized by democracy, rule of law, and protection of property rights.
- Encourage participation, safeguard property rights, and promote equitable growth.
- Foster broad participation and long-term investment and provide incentives for individuals to contribute to prosperity.
- Extractive Institutions: Marked by weak rule of law, concentration of power (autocracy or dictatorship), and risks of expropriation.
- Concentrate wealth and power, discourage innovation, and undermine long-term growth.
- Stifle innovation and economic progress by creating risks for individuals and businesses.
Their Contribution in Establishing Colonial Link
- Key Study: “The Colonial Origins of Comparative Development” (2001) by the laureates.
- European colonisation influenced institutional development.
- Extractive Institutions: Created in colonies with high mortality risks, aimed at exploiting local populations.
- Inclusive Institutions: Established in colonies with lower mortality risks, fostering long-term development for settlers.
- They took the Example of British India
- Pre-colonial India: In the mid-18th century, India’s industrial production exceeded that of the U.S.
- Post-colonial Shift: British policies introduced extractive institutions, reversing India’s prosperity.
- Technological Innovations: Thrived in regions with inclusive institutions, but stagnated in areas with extractive systems.
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Current Global Implications of institutions
- Institutional Weakness: Acemoglu noted a global decline in the strength of institutions, including in the U.S.
- Declining Support for Democracy: Democracies face challenges and must improve governance to maintain public trust.
- India and China Debate: Despite inclusive institutions in India , it has struggled with rapid economic growth. On the other hand China achieved substantial economic growth without inclusive institutions.
- China’s long-term success without inclusive institutions remains unclear; India’s potential may be realized in future decades.
About the Nobel Prize in Economic Sciences
- Established: 1968 by the Sveriges Riksbank in memory of Alfred Nobel.
- Not part of the original Nobel Prizes.
- Original Nobel Prizes: Awarded in Physics, Chemistry, Medicine, Literature, and Peace.
- Purpose: Recognizes significant research, discoveries, or contributions that advance understanding and application of economics to real-world challenges.
- Amartya Sen was awarded the Nobel Prize in 1998 in the field of Economic Sciences for his contributions to welfare economics.
- Abhijit Banerjee is an Indo-American who was conferred with the Nobel Prize in 2019 in the field of Economic Sciences for helping to develop an innovative experimental approach to alleviating global poverty.
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October 15, 2024
