The 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, more commonly known as the Nobel Prize in Economics, has been awarded to three influential economists this year - Daron Acemoglu, Simon Johnson, and James Robinson. The prize – worth 11 million Swedish crowns, or about $1 million or roughly €950,000 – was awarded by the Royal Swedish Academy of Sciences for their ‘studies of how institutions are formed and affect prosperity’ (Ricciuti), providing critical insights into why some countries achieve higher per capita incomes and others struggle with persistent economic challenges. Their work also emphasizes the importance of establishing robust institutions to support sustainable economic growth and social stability.

The Research That Was Awarded the Prize

The 2024 Nobel Prize in Economics recognised the transformative work of economists Daron Acemoglu, Simon Johnson, and James Robinson on the role of institutions in economic development. Their work explores how political and economic institutions influence a country’s success or poverty. Through their research, they argue that the legacy of colonial institutions has had long-lasting effects, shaping economic disparities worldwide. Nations where settlers established stable political institutions tend to have more successful economies, whereas countries where colonial powers primarily engaged in resource extraction often face economic struggles to this day.

Their research has introduced a more nuanced perspective on economic development, highlighting the necessity for political and institutional reforms to address global inequalities. Their findings emphasize how inclusive institutions - those that allow broad access to resources and economic opportunities - are foundational to building stable and thriving economies.

Detailing the Formation of Institutions and the Effect on Their Prosperity
One of the core concepts of the combined work of this year’s prize winners is that of Extractive institutions versus Inclusive institutions.

Extractive Institutions tend to centralize power and wealth in the hands of a few. They limit opportunities for the wider population and lead to slower economic growth and higher inequality in the longer term.

Inclusive Institutions on the other hand allow a broad participation in the economy, protect individual rights and enable people to benefit more directly from their work. This leads to higher investor confidence and innovation and is associated with longer-term economic growth and prosperity.

This builds on previous work by scholars working in the field of Institutional Economics. The 2024 winners expanded on this to explore how colonial history impacts today’s economies.

A key aspect of the research was the identification of a link between the attractiveness of the environment for colonial settlers, and by extension the health of colonial settlers, and the types of institutions that developed. Empirically, Acemoglu, Robinson and Johnson identify areas that experienced lower “settler mortality”, for example North America, as more hospitable regions, whereas areas with higher settler mortality, typically due to environmental and health factors like higher disease prevalence (e.g. Malaria), were identified as less hospitable for colonial settlers, for example South America, parts of Africa and parts of Asia.

They identified that in those places with a more hospitable environment, defined by lower settler mortality rates, institutions tended to develop as more inclusive and stable, promoting long-term prosperity for the settlers.

In contrast, in those areas with higher settler mortality rates, assumed to be, broadly speaking, less attractive for (mostly European) colonizers in the longer-term, the colonizing nations tended to establish more extractive, resource (including labor) focused institutions, allowing for a faster short-term exploitation of local resources, but at the expense of the short-term and long-term inclusion and well-being of the local population.

A final element of the research agenda is the legacy of these institutions, the forms in which they have persisted today, and how they have shaped, and continue to shape, economic patterns even generations after their establishment.

Debate and Criticism

As befits groundbreaking and fundamental economic research, the work is not without its critics. One point of controversy relates to methodology and data issues. Specifically, some experts argue that the prize winners’ use of “settler mortality” data may not fully capture the complexities of different historical situations. Further, emphasizing the state of institutions as a legacy of colonial times to explain the current challenges in certain countries and regions, while undoubtedly providing a useful framework, may risk glossing over other factors unique to a country or region. For example the impact of the Atlantic slave trade, the colonial exploitation of natural resources, and the economic and cultural trauma resulting from these that, many would argue, lasts to this day, surely played a role too.

It should be noted that the prize winners do not argue that the institutional legacy is the only point of explanation for levels of poverty today. As such, the “criticism” in this sense would perhaps more accurately be that the prominence given to the role of institutions by the winners, and more broadly by New Institutional Economics (NIE) as a subfield of economics, can divert from other (typically more qualitative social and political) factors. This prominence is of course increased by the Nobel Prize award, but is perhaps better viewed as a correction of too much emphasis on broader social, economic and political factors, and a long-standing underemphasis of the role of institutions. In summary, as long as researchers and policy makers consider the institutional approach in context, without neglecting other factors, then it can of course contribute extensively to a more complete picture and, one hopes, better research and policy in future.

Another criticism is that the approach is not entirely new. New Institutional Economics as a subfield developed in the 1960s and 1970s (the term is attributed to Oliver Williamson, himself a Nobel Prize winner from 2009). Its application to help explain the prosperity or poverty of national economies was arguably pioneered by Douglass North, who died in 2015 and had already been awarded a Nobel Prize for his work in 1993. While he focused on the importance of institutions in the development of market economies, rather than making a correlation between institutions and poverty per-se, his work no doubt contributed enormously to the recognition of the importance of New Institutional Economics as a field, and of the role of institutions in national economic success.

But again, this is not a criticism as such of the 2024 prize winners and their research. Between them, the new insight they brought has strengthened the field and our understanding of the importance of historical institutional development in modern-day prosperity. Indeed, supporters highlight how the work of Acemoglu, Johnson and Robinson provides clear ideas on how countries can reform institutions for economic development, especially relevant for today’s emerging economies.

The Winners' Biographies
Daron Acemoglu specializes in economic growth, political economy, and institutions, he was born in 1967 in Istanbul, Turkey. He received his BA in economics from the University of York, UK, in 1989, thereafter receiving an MSc in econometrics and mathematical economics at the London School of Economics in 1990, and a PhD in economics in 1992. Later Acemoglu moved to the US and joined MIT in 1993 as an assistant professor where he worked his way up to full professor by 2000. His work focuses on how political decisions shape economic outcomes, analyzing issues like inequality, economic power, and the impact of technology on labor markets. He is highly regarded for his publications, including ‘Why Nations Fail’ co-authored with James Robinson, and ‘Power and Progress’, a recent book co-written with Simon Johnson. Acemoglu's research has gained attention from both academic and policy circles, establishing him as a significant figure in economic thought and reform advocacy.

Simon Johnson, also a professor at MIT, is renowned for his expertise in macroeconomics and development economics. He was born in 1963 in Sheffield, UK, and received a first from Oxford University in 1984, and a Master's in economics from the University of Manchester before doing his PhD at MIT. Johnson’s career took off with a Chief Economist position at the International Monetary Fund (IMF). His research often explores the intersection of economic policies, institutional development, and global markets, frequently addressing how institutions can drive or hinder economic progress. In addition to his academic contributions, Johnson co-authored ‘Power and Progress’ with Acemoglu, a work that examines the effects of technology on economic growth and democracy.

James Robinson is a British-American political scientist and economist who currently teaches at the University of Chicago. He received a BSc in Economics from LSE in 1982 and a Doctor of Philosophy in economic theory and labor relations from Yale University in 1993. His research primarily focuses on political institutions and their impact on economic and social outcomes, particularly in developing regions. Robinson has an extensive research background in Latin America and Africa, which has shaped his understanding of institutional dynamics in diverse socio-political contexts. His collaborative work with Acemoglu, including ‘Why Nations Fail’ , explores the historical and institutional roots of economic disparity, emphasizing how inclusive institutions are vital for fostering stable and prosperous societies.

Together, Acemoglu, Johnson, and Robinson have built a significant body of work that not only advances economic theory but also provides practical frameworks for understanding—and potentially remedying—the institutional causes of global economic inequality. Their combined efforts continue to influence both the academic field and real-world policies.

Works Cited
Acemoglu, Daron, and Simon Johnson. Power and Progress: Our Thousand-year Struggle Over Technology and Prosperity. Basic Books, 2023.
Acemoglu, Daron, and James A. Robinson. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. Crown, 2012.
North, Douglass. “Theory of Institutions: Lessons for Law and Development.” Hague Journal on the Rule of Law, vol. 8, no. -, 2016, pp. 373-419. Springer Nature Link, https://link.springer.com/article/10.1007/s40803-016-0028-8.
Ricciuti, Roberto. “All Nobel Prizes 2024 - NobelPrize.org.” Nobel Prize, 2024, https://www.nobelprize.org/all-nobel-prizes-2024/. Accessed 7 November 2024.
 

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