The 2024 Nobel Prize in Economics has been awarded to three American economists whose research explains why some countries are rich and others poor. They used theory as well as empirical evidence to argue that differences between economic institutions are the fundamental cause of divergences in long-term economic growth. Simply put: economic growth is a consequence of good governance, respect for property rights, constraints on power holders and relatively lower rent-seeking on the part of power holders. Their conclusions, however, raise certain reservations.

The winners are Daron Acemoglu, the Elizabeth and James Killian Professor of Economics in the Department of Economics at the Massachusetts Institute of Technology (MIT); James A Robinson, political scientist and economist, who teaches at the University of Chicago; and Simon Johnson, Ronald A Kurtz Professor of Entrepreneurship (1954) at the MIT Sloan School of Management.

The work of Acemoglu, Johnson, and Robinson divides institutions into two categories: “inclusive” and “extractive.” Inclusive institutions include property rights, democracy, rule of law and order, and anti-corruption, while extractive institutions give rise to a high concentration of power and limited political freedom, seeking to concentrate resources in the hands of a small elite and thus stifle economic development.

A book by Acemoglu and Robinson, titled Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012), analyzes why some countries develop while others are left behind. They raise the question: “what forces or institutions promote or hinder economic growth?” They acknowledge that in some cases it appears that GDP growth is determined by a gift of nature, but that, overall, sustainable and “feel-good” societal institutions are a prerequisite for successful prosperity. sustainable. India is an example. Its per capita income was higher than that of European countries during the Mughal era, but this did not last beyond a few centuries. These are favorable political and economic institutions that can explain the sustainable increase in per capita income and well-being of the majority.

A minor point of interest is that all three winners were born outside the United States, where they studied and spent most of their lives. Acemoglu was born in Türkiye, while the other two were born in the United Kingdom (incidentally, Robinson grew up in Barbados). I wonder if their migration to the United States may have played a role in their choice of topics: in the divergence of economic growth of different countries. In addition, all of them had to go through one of the best American universities during their careers, which was noted with concern by some academicians.

All three economists examined European colonization of large parts of the globe. They wrote a seminal article in the American Economic Review in 2001 titled “The Colonial Origins of Comparative Development: An Empirical Investigation.” As everyone knows, current differences in prosperity are mainly explained by the political and economic systems that colonizers introduced or chose to promote from the 16th century onwards in Asia, Africa and the Americas.

Several criticisms of the research of the three winners have been expressed. First of all, they have a very narrow point of view. Their theory legitimizes the processes of imperialism and colonialism and, at worst, absolves racism. Where Europeans settled, they built good institutions, but in Africa and Asia they hindered the growth of self-rule and democracy.

Second, researchers from Harvard and Yale emphasize that it is not institutions that lead to growth. On the contrary, growth supports institutions. Taiwan, South Korea, and Singapore had authoritarian governments when they were at their peak of economic growth. China developed without democratic institutions. Third, their work reveals a bias toward capitalist institutions, inevitably leading to the concentration of wealth and political power among a select minority.

Other economists have also disputed causality. Do political institutions cause economic growth, or do economic growth and human capital development lead to institutional improvement? As noted above, causality could have been the opposite of what the trio claims.

Mushtaq Khan, professor of economics at the University of London’s School of Oriental and African Studies, says the research by Acemoglu, Johnson and Robinson mainly shows that today’s high-income countries are getting better results in the indices of Western institutions, and not that the latter obtain better results. Countries have achieved economic development because they first created inclusive institutions.

We also lack reliable estimates of the “effect of institutions on economic performance.” However, this year’s Nobel Prize in Economics will stimulate research into the role of the state, wealth inequality and the persistence of poverty.

Regarding the relevance of the research to Bangladesh, although the country has experienced significant economic growth, its institutional framework is not considered entirely conducive to sustained long-term growth. Bureaucratic hurdles, corruption, lack of transparency and weak regulatory bodies often hinder business activities and investment potential. The recent uprising in July and August demonstrated that improving governance and institutional quality is crucial for Bangladesh to reach its full economic potential. In recent years, some have hailed Bangladesh as a “tiger economy”, but it is now clear that all these slogans amount to hailing the “emperor without clothes”.

Dr Abdallah Shibli is an economist working for Change Healthcare, Inc., an information technology company. He is also a senior researcher at the International Sustainable Development Institute (ISDI), based in the United States.

The opinions expressed in this article are those of the author.

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