The long-lasting impact of Europe’s former empires on growth forms the basis of research by three US-based academics who will share the 2024 Nobel Prize in economics. Daron Acemoglu and Simon Johnson—a former Chief Economist at the International Monetary Fund—along with James A. Robinson, were praised for their analysis of how prosperity can come about, and the importance of institutions in that process.
Their work’s relevance to the present day, in discerning why some countries are rich and some much poorer, was highlighted by the Royal Swedish Academy of Sciences in Stockholm, whose award of 11 million krona ($1.1 million) will be shared between them.
“Reducing the vast differences in income between countries is one of our time’s greatest challenges,” Jakob Svensson, chair of the academy’s Committee for the Prize in Economic Sciences, said in a statement on October 14. “The laureates have demonstrated the importance of societal institutions for achieving this.”
Lasting impact of colonialism
In the panel’s description, research by the three academics showed how the path to prosperity can vary partly because of structures established in countries colonised by Europeans. “In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions,” the economists wrote in a joint paper published in 2001. “These institutions persisted to the present.”
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In a statement explaining the prize, the jury noted the example of the city of Nogales, which is divided by the US-Mexican border, where residents on the US side of the city tend to be better off. “The decisive difference is thus not geography or culture, but institutions,” the Royal Swedish Academy of Sciences said.
The US economic system provides residents north of the border greater opportunities to choose their education and profession, and they are part of the US political system, which gives them broad political rights. By contrast, south of the border, residents live under other economic conditions, and the political system limits their potential to influence legislation.
Who are the winners?
Of the three winners, Johnson, 61, is probably best known for his stint at the IMF. While brief—lasting only from March 2007 until August 2008—it coincided with the onset of the global financial crisis. He is a professor at the Massachusetts Institute of Technology along with his colleague Acemoglu, 57. They co-authored a book published in 2023 called Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity.
“Broadly speaking the work that we have done favors democracy,” Acemoglu said via phone at the press conference after the prize was announced. “Countries that democratise starting from non-democratic regime do ultimately grow, in about 8-9 years, faster than non-democratic regimes, and it’s a substantial gain. But democracy is not a panacea. Introducing democracy is very hard.”
Johnson said there were no quick fixes for those countries that lag behind. “So much of that poverty is unfortunately the result of long-standing institutional arrangements, political and economic. So there are some very big burdens to overcome,” he said in an interview with the Nobel Foundation.
James A. Robinson and Daron Acemoglu co-authored Why Nations Fail: The Origins of Power, Prosperity, and Poverty, a book first published in 2012.
Robinson, the third winner, is a professor at the University of Chicago. He and Acemoglu co-authored Why Nations Fail: The Origins of Power, Prosperity, and Poverty, a book first published in 2012.
In an interview, Robinson, 64, said he doubts that China can sustain its economic prosperity as long as it keeps a repressive political system. “There’s many examples in world history of societies like that that do well for 40, 50 years,” Robinson said by phone. “What you see is that’s never sustainable. ... The Soviet Union did well for 50 or 60 years.’‘
Robinson said many societies have successfully made the transition to what he, Acemoglu, and Johnson call an “inclusive society”. “Look at the United States,” Robinson said. “This was a country of slavery, of privilege, where women were not allowed to take part in the economy or vote.”
“Every country that is currently relatively inclusive and open made that transition,” he added. “In the modern world, you’ve seen that in South Korea, in Taiwan, in Mauritius.’’
An unequal prize
The prize, formally known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, was established in 1968 by the Swedish central bank. It complements annual prizes for achievements in physics, chemistry, medicine, literature, and peace, which were established in the will of Alfred Nobel—the Swedish inventor of dynamite who died in 1896.
In 2023, Claudia Goldin received the accolade for her research into gender pay gaps, and the year before, former Federal Reserve Chairman Ben Bernanke shared the award with Douglas Diamond and Philip Dybvig for research on banks and financial crises. Other laureates include Friedrich Hayek for work in the theory of money and economic fluctuations, William Nordhaus for integrating climate change into long-run macroeconomic analysis and Paul Krugman for his analysis of world trade. In 2019, economists Abhijit Banerjee, Esther Duflo, and Michael Kremer won the award for work on fighting poverty.
The Nobel Prizes, awarded since 1901, are famously unequal, reflecting how women have been overshadowed by men in science for centuries. Only three women have received the economics award, which makes its roster of laureates the second most male-dominated, after the prize in physics.
(with inputs from agencies)
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