Context:
Recently, the Nobel Prize in Economic Sciences was awarded to Daron Acemoglu, Simon Johnson, and James Robinson “for studies of how institutions are formed and affect prosperity”.
More on the News:
- The research helps to understand why “Societies with a poor rule of law and institutions that exploit the population do not generate growth or change for the better.
- It has shed light on the profound impact of societal institutions on economic growth and national well-being.
laureates Key Insights on Colonization and Economic Institutions:
Diverse Institutional Impacts: Colonization led to varying institutional changes, with some regions facing exploitation while others saw the establishment of inclusive systems for settlers.
- For Example, India’s industrial output was higher than the US, but this reversed by the 19th century, largely due to indifference towards institutions under British rule.
Prosperity and Institutions: Societies with inclusive institutions often thrived economically, while those with extractive institutions experienced stagnation and poverty.
- Inclusive institutions feature democracy, law and order, and property rights protection. In contrast, Extractive institutions lack the rule of law, concentrate power in a few hands, and risk of expropriation (Expropriation is the act of a government claiming privately owned property against the wishes of the owners).
Political Control Dilemma: Extractive institutions yield short-term gains for the elite, hindering credible promises of reforms and maintaining a cycle of low growth.
Democratization Triggers: Threats of revolution can force leaders to democratize, as they struggle to maintain power while needing to address public discontent through reforms.
Significance
This research provides valuable insights for policymakers and development practitioners, emphasizing the critical role of institutional reform in fostering sustainable economic growth and reducing global income disparities.