Stockholm: The Royal Swedish Academy of Sciences has awarded the 2024 Nobel Prize in Economic Sciences to three American economists for their groundbreaking research into why vast disparities in prosperity exist between countries. Daron Acemoglu and Simon Johnson from the Massachusetts Institute of Technology (MIT) and James A. Robinson from the University of Chicago were honored for their studies on how the structure of societal institutions shapes a nation’s economic fortunes.
The laureates’ research highlights the critical role that societal institutions, such as the rule of law, political systems, and economic policies, play in determining whether a country thrives or falls into poverty. Their work has helped shed light on the fundamental reasons why some countries are rich while others remain poor.
“Societies with poor rule of law and institutions that exploit the population do not foster growth or positive change,” stated the Royal Academy in its announcement. “The laureates’ research helps us understand why certain nations struggle to develop economically, while others flourish.”
The prize-winning economists demonstrated that the roots of modern-day economic disparities can often be traced back to the colonial era. When Europeans colonized large swaths of the globe, they introduced new institutions to govern these territories—but the nature of these institutions varied significantly.
In some colonies, the colonizers established systems designed to extract natural resources and exploit the indigenous population for their own benefit. These extractive institutions often led to long-term stagnation and inequality. In other regions, however, European settlers created inclusive political and economic systems that provided the foundation for future growth and prosperity.
“This is a key reason why many former colonies that were once rich are now poor, and vice versa,” the Academy noted in its statement. The laureates’ findings suggest that the type of institutions introduced during colonization can have long-lasting effects on a country’s economic trajectory.
Another crucial aspect of the trio’s research addresses how political systems and their ability to make credible promises of reform influence a country’s economic development. According to their findings, elites who control the political system are often unable to convince the broader population that they will enact meaningful reforms to improve economic conditions. As long as elites remain in power, trust in their promises diminishes, resulting in little to no improvement.
However, their research also points to how this very lack of credibility can sometimes lead to democratisation. When faced with threats of revolution or social upheaval, the ruling elites often find themselves in a bind—either they attempt to pacify the masses with promises of reform, or they risk losing power altogether. The researchers argue that, in some cases, the inability to reassure the population of future reforms may lead to a transfer of power and the establishment of more democratic institutions.
“As economic and political instability rise, elites are faced with the dilemma of either promising reforms, which may not be believed, or stepping down to allow democracy to take root,” explained the Academy. This dynamic helps explain the conditions under which democracies emerge in formerly authoritarian or extractive regimes.
Jakob Svensson, Chair of the Committee for the Prize in Economic Sciences, emphasized the relevance of the laureates’ research in addressing one of the world’s most pressing economic challenges—reducing the vast income disparities between nations. “The laureates have demonstrated the importance of societal institutions for achieving prosperity, and their work offers critical insights into how nations can break the cycle of poverty,” Svensson stated.
As the global economy grapples with inequality and development challenges, the work of Acemoglu, Johnson, and Robinson provides vital guidance on how building inclusive, well-functioning institutions can foster long-term economic growth and stability.
