Nobel Prize in Economics 2024

Source: This post on Nobel Prize in Economics 2024 has been created based on the article “What this year’s Nobel Prize in Economics was awarded for” published in Indian Express on 15^th October 2024.

Why in news?

Recently, The Nobel Prize in Economics was awarded to economists Daron Acemoglu, Simon Johnson, and James A. Robinson for their research on how societal institutions shape economic prosperity.

What are the core findings?

1. Their work explains why some nations prosper while others do not, emphasising that countries with inclusive institutions characterised by democracy, rule of law, and property rights tend to experience sustained growth.

2. In contrast, nations with extractive institutions, where power is centralized and the rule of law is weak, fail to achieve similar outcomes.

3. Inclusive vs. Extractive Institutions

Inclusive Institutions: These promote economic growth by ensuring rights, legal protections, and democratic governance. They create an environment where individuals feel secure to invest in their future.

Extractive Institutions: These hinder growth by concentrating power, exploiting resources, and lacking protections for individuals’ rights. Extractive institutions deter long-term economic planning and foster inequality.

4. Colonial Influence on Institutional Development: The laureates’ research highlights how European colonial powers chose different institutional frameworks based on their goals. Where they aimed to extract resources, they established exploitative systems. In colonies where Europeans settled long-term, they set up inclusive institutions that fostered economic growth.

Under British rule, India’s economic structure shifted from thriving industrial activity to serving colonial extractive needs, leading to a decline in prosperity. This legacy underscore the lasting impact of institutional frameworks on national development.

5. Future Considerations for Democracies: According to Acemoglu, global democracies are experiencing a decline in institutional strength and public trust. There is a need to restore democratic institutions’ credibility by improving governance and ensuring they serve broader societal interests.

UPSC Syllabus: Miscellaneous