Economists win Nobel for research on global inequality / Countries that developed inclusive institutions have experienced long-term prosperity; those with exclusive institutions haven’t.

 

Economists win Nobel for research on global inequality

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Former econ majors, prepare yourselves for some deja vu. Authors of the seminal textbook Why Nations Fail were part of the trio awarded the Nobel Prize in economics yesterday for their work to “better explain the reasons for persistent inequality between nations,” per the Nobel committee.

Daron Acemoglu, James Robinson, and former International Monetary Fund chief economist Simon Johnson will split the roughly $1 million cash prize for their research, which found a link between a country's prosperity and the institutions it established during European colonization.

According to the award-winning research:

• Places developed either “inclusive” or “extractive” institutions based on population density. The former allowed for inclusive governance (i.e., democracy), while the latter extracted resources to benefit a small group of elites.
• Countries that developed inclusive institutions have experienced long-term prosperity; those with exclusive institutions haven’t. “Broadly speaking, the work that we have done favors democracy,” Acemoglu said.

A modern example: In the twin cities of Nogales, on the US-Mexico border, the north and south parts of the transborder city have the same climate and the same resources, but the section in the US is far richer because of the country’s institutions, according to the researchers.

But they aren’t without their critics. Some academics argue the Nobel winners’ premise ignores the effects of culture on prosperity. Others point to an irrefutable counterexample: China continues to experience explosive growth despite having an autocratic government.—CC