The 2024 Nobel Memorial Prize in Economic Sciences was awarded to Daron Acemoglu, Simon Johnson, and James Robinson for “studies of how institutions are formed and affect prosperity.” Nathan Nunn and Felipe Valencia Caicedo describe the seminal contributions of the authors, their broader impact, and some paths for the future research agenda.
This year’s (Economics) Nobel Prize was awarded to Daron Acemoglu (MIT), Simon Johnson (MIT), and James Robinson (Chicago) for their work, which significantly improved our understanding of how institutions are formed and their importance for long-term economic development. In this entry, we focus first on the seminal contributions of the authors, particularly Acemoglu, Johnson, and Robinson (2001, 2002, and 2005), tracing their broader impacts across the profession and offering thoughts on the questions and issues that remain less well understood.
In their 2001 paper, “The Colonial Origins of Comparative Development: An Empirical Investigation,” Daron Acemoglu, Simon Johnson and James Robinson examined the effects of colonial rule on the institutions it implemented, including their long-term impact on economic development. The authors hypothesized that, because colonies with a less deadly disease environment had greater European settlement, growth-promoting institutions were established in these places to protect property rights during colonial rule. In colonies in which European mortality was high and thus their settlement was low, the colonizers did not have an incentive to establish strong property rights and instead established extractive rent-seeking institutions.
Using this logic, the authors provided an estimate of the causal effects of contemporary institutions on per capita income, using early European mortality rates as an instrument for institutions to estimate their effect on long-term economic development. The institutions studied were primarily legal systems, such as political regimes and labor markets.
A key presumption was that particular geographic characteristics—which determined early settler mortality—only matter for contemporary income through their persistent historical effect on domestic institutions. Evidence uncovered in the authors’ 2002 paper— “Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution”— supported this approach by showing that parts of the world that were the most prosperous in 1500 are the poorest countries today. They argued that if geography mattered through persistent channels other than whether they had been colonized, then we would not expect this dramatic reordering of the relative prosperity of countries over time. The authors argued that the reason for this “reversal of fortunes” is that in locations that were initially richer and more densely populated, the European powers failed to establish good institutions and instead focused on extraction. In locations that were poorer and with sparse populations, the colonizers settled, investing in institutions that were supportive of longer-term economic development.
In subsequent research, published in 2005, the authors first showed that the rise of Europe and capacity to industrialize first is almost fully explained by Western Europe’s access to the Atlantic trade. However, they argued that profits from the trade alone cannot explain the divergence. Instead, institutional improvements arose as merchants and other economic interests gained power and used this power to restrain entrenched aristocracies and monarchies through countervailing institutions.
The authors matched their empirical investigations with a deeper theoretical understanding of how “bad” institutions could arise in equilibrium, and more importantly, what could explain their persistence. Their work explained why “good” institutions, like democracy, could emerge despite the prior presence and persistence of “bad” autocratic institutions. One explanation they found is that democracy provided the elite with a way to commit to future redistribution in the face of revolt. Only by changing the fundamental nature of institutions was the commitment credible.
Broader Impact
To fully understand the impact of their line of research one needs to understand the nature of thinking about long-term economic growth in the late 1990s, a time when the dominant view was that the key to economic growth was savings and investment. Scholars tended to have classical models along the lines of Harrod-Domar, Lewis, or Solow in mind when thinking about long-term growth. Although mathematically neat, these models weren’t able to explain the variation in economic performance observed when looking over long periods of time or across broad cross-sections of societies. The empirical work that stemmed from these models tended to focus on factors that were proximate rather than deeper determinants and they also tended to focus on economic growth over moderate periods of time rather than over the very long-run – e.g., as captured by a country’s level of income.
Their 2001 paper—and their broader research agenda—dramatically expanded the scope of thinking within developmental economics. On the one hand, their empirical work combined the rigor of the “credibility revolution” that was occurring at the time—recognized in the portion of the 2021 Nobel Prize awarded to J. Angrist and G. Imbens for “their methodological contributions to the analysis of causal relationships.” On the other hand, their research focused on a fundamental determinant of economic prosperity, economic institutions, which built upon the work of economic historians like Douglas North, also winner of the Nobel Prize in 1993. For example, they showed how history and colonization could be used as a natural historical experiment to strive to test for a fundamental determinant of long-term economic growth. This took the empirical growth literature in a very different direction, spurring a literature that focused on big-picture questions over long periods of time and across a wide range of countries.
While there were precursors to their paper, (e.g., North & Thomas, 1973; North, 1981, 1990; De Long & Shleifer, 1993; La Porta et al., 1997, 1998; Hall & Jones, 1999) and also concurrent work, (e.g., Sokoloff and Engerman, 2000), the Nobel winners’ work fundamentally altered the nature of inquiry within economics. The connections, synergies, and tensions between these studies are discussed in more detail in Nunn (2009, 2014).
Scholars build on Acemoglu, Johnson, and Robinson’s research to study particular aspects of formal colonial rule within specific colonies using more granular data (Banerjee & Iyer, 2005; Dell, 2010; Dell and Olken, 2020; Lowes & Montero, 2021a,b; Archibong & Obikili, 2024) or to look at other aspects of colonialism beyond formal colonial rule, such as the slave trades in Africa or missionary activity. Studies began to estimate, for the first time, the lingering effects of a range of other historical events that were descriptively known to be important but never studied quantitatively and causally. For example, we soon had a much better understanding of the consequences of the Protestant Reformation, the French Revolution, pogroms in Western Russia, pre-colonial institutions in Africa, the drawing of artificial borders in Africa, forced migrations during WWII, and frontier settlement in the United States.
Future Research Agenda
Acemoglu, Johnson, and Robinson’s research opened the door for a richer and deeper inquiry into fundamental, rather than proximate, differences between countries and their importance for long-term economic development. Although their work dramatically improved our understanding, much remains to be understood. This includes the role of moral values and norms in supporting and maintaining functioning institutions and the question of how these, in turn, are affected by formal institutions, as well as the role of idiosyncratic events and particular individuals in shaping institutions’ evolution. These questions are particularly relevant given our current political setting, both globally and particularly in the U.S. The relationships between globalization, inequality, discontent, political instability, and rising populist sentiment remain poorly understood. Moving forward, one of the most pressing challenges that we face is recurring climate crises. What institutional designs are best suited to address these challenges remains an open question.
Finally, as societies around the world aim to improve upon existing institutions in a way that leads to improved societal well-being, it is unclear whether “good institutions” look the same everywhere in the world and at all levels of governance. It is likely that the local context, including cultures, norms, traditions, and worldviews, play a critical role in determining which institutional designs work and which don’t work in the local context. Thus, while the research of Acemoglu, Johnson, and Robinson has taught us that “good institutions” are important for growth, there is the important question as to whether good institutions look the same everywhere in the world, or whether they should be adapted to local conditions.
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