Three Receive Nobel in Economics for Research on Global Inequality

"Daron Acemoglu, Simon Johnson and James Robinson shared the award for their work on explaining the gaps in prosperity between nations.

The Nobel Memorial Prize in Economic Sciences was awarded on Monday to Daron Acemoglu and Simon Johnson, both of the Massachusetts Institute of Technology, and to James Robinson of the University of Chicago.

They received the prize for their research into how institutions shape which countries become wealthy and prosperous — and how those structures came to exist in the first place.

The laureates delved into the world’s colonial past to trace how gaps emerged between nations, arguing that countries that started out with more inclusive institutions during the colonial period tended to become more prosperous. Their pioneering use of theory and data has helped to better explain the reasons for persistent inequality between nations, according to the Nobel committee.

“Reducing the huge differences in income between countries is one of our times’ greatest challenges,” Jakob Svensson, chairman of the economics prize committee, said while announcing the award. Thanks to the economists’ “groundbreaking research,” he said, “we have a much deeper understanding of the root causes of why countries fail or succeed.”

According to the researchers, prosperity today is partly a legacy of history — and, specifically, to what happened in a given nation during European colonization.

Countries that developed institutions that protected personal property rights and allowed for widespread economic participation tended to end up on a pathway to longer-term prosperity. Those that had extractive institutions — ones that helped elites to maintain control, but which gave workers little hope of sharing in the wealth — merely provided short-term gains for the people in power.

“Rather than asking whether colonialism is good or bad, we note that different colonial strategies have led to different institutional patterns that have persisted over time,” Dr. Acemoglu said during a news conference after the prize was announced.

“Broadly speaking, the work that we have done favors democracy,” he said.

In fact, the laureates found that colonization brought about a major change in global fortunes. European nations used more authoritarian systems to control places that were densely populated at the time of colonization, while those that were sparsely populated often saw more settlers and established a more inclusive form of governance — if not quite a democratic one.

Over time, that led to a turnabout in economic fate: While the Aztec empire was more populous and rich than North America at the time of early European exploration, today the United States and Canada have outstripped Mexico in economic prosperity.

“This reversal of relative prosperity is historically unique,” the Nobel release explained. “If we look at the parts of the globe that were not colonized, we do not find any reversal of fortune.”

The legacy is still visible today, the researchers said. As an example, Dr. Acemoglu and Dr. Robinson point to the city of Nogales, which straddles the border between Mexico and Arizona.

Northern Nogales is more affluent than its southern portion, despite a shared culture and location. The driver of differences, the economists argue, is the institutions governing the two halves of the city.

The economists wrote books based on their work, including “Why Nations Fail,” by Dr. Acemoglu and Dr. Robinson, and “Power and Progress,” by Dr. Acemoglu and Dr. Johnson, published last year.

The economists’ arguments have at times been debated, including by academics who think that culture matters more to development than they let on.

And while their research tends to favor it, Dr. Acemoglu acknowledged during Monday’s news conference that “democracy is not a panacea.”

Representative government can be hard to introduce and volatile at first, for one thing. And there are pathways to growth for countries that are not democracies, he said, including rapidly tapping a nation’s resources to ramp up economic progress. But, Dr. Acemoglu said, “more authoritarian growth” is often more unstable and less innovative.

Dani Rodrik, an economist at the Harvard Kennedy School who studies globalization and development, said that the three laureates had contributed a clearer understanding that democracy could be important to successful development — something that had not always been widely accepted within the profession.

“They’ve elevated the important and positive impact of democracy on long-term economic performance,” he said.

The researchers have also helped to make studying history and institutions, formerly out of vogue, “cool again,” Dr. Rodrik said.

Dr. Acemoglu has for years topped lists of who might win a Nobel, but he said that the award was not something that one could anticipate. He was in Athens when he got the call.

“You dream of having a good career, but this is over and on top of that,” Dr. Acemoglu said during the news conference.

Dr. Johnson, the former chief economist at the International Monetary Fund, woke up to a bevy of congratulatory text messages in the United States. He said in an interview that he was “surprised and delighted.”" [1]

1. Three Receive Nobel in Economics for Research on Global Inequality. Smialek, Jeanna.  New York Times (Online) New York Times Company. Oct 14, 2024.