Economics prize explains wealth gap between countries
This year's Nobel Prize in Economics goes to Daron Acemoglu, Simon Johnson and James A. Robinson for their insights into the large differences in wealth between countries. One important explanation is the persistence of differences in social institutions.
"Their work has been very influential, both theoretically and methodologically, and has inspired a great deal of new research," says Ola Olsson, Professor of Economics at the School of Business, Economics and Law at the University of Gothenburg.
The recipients of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2024 have shown in their research that differences in wealth between countries can be traced to the societal institutions introduced during the colonial period. According to the researchers, some countries received so-called inclusive institutions, which aimed to shape political and economic systems for the long-term benefit of European settlers. This led to greater prosperity over time. In other parts of the world, the aim was to exploit the indigenous population and extract natural resources for personal gain through what the researchers call extractive institutions. They also show that some countries that became rich during the colonial period became poorer over time, partly because the country's elite prioritised their own gain over the benefit of the whole population.
"They have convincingly demonstrated the link between institutional quality, such as a functioning democracy and strong legal systems, and a country's development. Their research has been very influential, and their methods and measurement tools have inspired a great deal of new research," says Ola Olsson, a researcher in the field.
Daron Acemoglu and Simon Johnson are both at the Massachusetts Institute of Technology, Cambridge, USA, and James A. Robinson is at the University of Chicago. The three laureates have developed theoretical tools to explain why wealth inequalities persist and how institutions can change. As an example of the impact of their work, the World Bank now uses their research to measure institutional quality as a method of promoting economic development.
Relevant to many disciplines
Acemoglu, Johnson and Robinson are among the most highly cited researchers in the social sciences, and their work is relevant to a range of research fields, including political science, economic history and business studies.
"It is great that economic history research is once again being recognised by the committee. The work of the laureates has had an impact on research and teaching in economic history. In particular, they have opened the eyes of many economists to the importance of looking at economic history to understand why the world is made up of rich and poor countries," said Svante Prado, Associate Professor of Economic History.
In business administration, the role of institutions is often considered to understand business activities and entrepreneurship.
"This is a pleasing choice of laureates and a prize that supports a range of research areas relevant to understanding how wealth is created and, not least, maintained in societies. The prize fits in well with an established view of the role of the firm in a competitive economic system that also needs to redistribute resources through mechanisms other than strictly market-based ones," says Alexander Styhre, Professor of Business Administration.
Historical economics a growing field
Ola Olsson researches historical economics, a field that has expanded internationally in recent years. The growth is partly due to rapidly increasing access to digitised historical maps and archival records, but also to a growing interest in how institutions and economies have developed over time.
“The laureates have been extremely important for my research within historical economics and long-run development. To give just one example, my co-authors and I have based our model entirely on the impact of democracy on growth in our latest project looking at the development of land surveying in the world. We have also had visits from James A. Robinson, and I myself have been a visiting PhD student at MIT in Daron Acemoglu's department," says Ola Olsson.
Text: Elin Hellström and Jessica Oscarsson
Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James A. Robinson was widely acclaimed when it was published in 2012 and has become a modern classic in the field. It provides a popularised review of their research on how institutions affect social development over time.