The 2024 Nobel Prize in Economics: Understanding How Institutions Shape Prosperity

The 2024 Nobel Prize in Economic Sciences was awarded to Daron Acemoglu (MIT), Simon Johnson (MIT Sloan), and James A. Robinson (University of Chicago) for their pioneering research on how political and economic institutions are formed and how they influence the long-term prosperity of nations. Their work sheds light on one of the most persistent puzzles in economics: why some countries thrive while others remain economically and politically marginalised.

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Institutions—rules, norms, and organizations that govern behaviour—lie at the heart of economic development. Acemoglu, Johnson, and Robinson emphasise that inclusive institutions, which uphold the rule of law, secure property rights, and allow broad-based participation in decision-making, foster innovation and long-term growth. In contrast, extractive institutions, which concentrate power and resources in the hands of a few, suppress innovation and often lead to stagnation.

A key insight from their research is that historical institutions persist and continue to shape modern outcomes. In their widely cited 2001 paper, Acemoglu, Johnson, and Robinson used European settler mortality rates during colonization as an instrumental variable to explain why some colonies—such as Canada and Australia—developed inclusive institutions, while others—such as Congo and Peru—implemented extractive systems. These early institutional choices, they argue, still influence today’s income levels and governance structures.

This perspective treats colonial history as a kind of “natural experiment” (refer to 2021 Nobel Prize in Economics), in which external shocks led to systematic variation in institutional development. Their work not only uses this approach to explain global inequality but also develops theoretical models that explain how entrenched elites often block reform to protect their interests, and how institutional transformation becomes feasible only when political power shifts.

© Johan Jarnestad/The Royal Swedish Academy of Sciences

The Nobel Committee highlighted the contemporary relevance of their insights, particularly as global inequality persists. Acemoglu and Johnson’s recent work—including their 2023 book Power and Progress—applies the institutional lens to pressing contemporary issues such as the rise of artificial intelligence and digital monopolies. They argue that without robust democratic institutions and active civic engagement, technological progress could further concentrate power and undermine economic security for the majority.

Their ideas also resonate with today’s policy concerns, including sovereign debt crises, erosion of democratic norms, and the quest for inclusive growth. For instance, in a 2022 commentary, Acemoglu and Robinson cited Taiwan as a successful case of institutional transition—highlighting how democratic reforms and inclusive governance contributed to its sustained prosperity (Project Syndicate, 2022).

Beyond academia, the laureates’ work has reshaped how policymakers think about development. Institutions are now widely recognised as a central variable—on par with capital, labour, and technology—in explaining national economic outcomes. Their research has influenced global organizations and inspired a vast body of follow-up studies in economics, political science, and development studies.

In conclusion, the 2024 Nobel Prize in Economics underscores a fundamental insight: economic development is not merely a matter of natural resources or geography, but of institutions and power structures that shape the incentives and opportunities available to individuals. Understanding and reforming these institutions remains a crucial task for any society seeking inclusive and sustainable prosperity.

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