York Alumni Wins Nobel Prize in Economics

Nicholas Griffiths

On the 14th of October 2024, Daron Acemoglu, Simon Johnson, and James A. Robinson were awarded the Sveriges Riksbank Prize in Economics Sciences in Memory of Alfred Nobel “for studies of how institutions are formed and affect prosperity”. Of these esteemed professors, Daron Acemoglu started his academic career at the University of York with a B.A. in Economics, then gained his MSc. and Ph.D. at the London School of Economics. This article will briefly survey his research in institutions that earned him his Nobel Prize.  

If one had to pick a book to represent Acemoglu’s work, the book he wrote alongside his fellow Nobel Laureate James A. Robinson called “Why Nations Fail: The Origins of Power, Prosperity, and Poverty” would be my personal choice. The book covers several case studies of similar places differentiated by their institutions: from the divided town of Nogales, split by the border between Arizona and Sonora, to the divergent paths of English, French, and Spanish societies in the seventh century. The book uses these case studies to convincingly argue that inclusive institutions, which allow for broad participation in decision-making and provide incentives for talent and creativity, drive differences in prosperity. This conclusion has played a pivotal role in international development theory, embedding institutions as a staple of its analysis, even if some critics argue that the book downplays the role of other factors, such as geography.  

As for Acemoglu’s research, his most cited article is “The Colonial Origins of Comparative Development: An Empirical Investigation”, which he worked on alongside Simon Johnson and James A. Robinson. This article employs a clever instrumental variable approach, whereby the endogeneity of the effect of institutions on economic performance is controlled for with settler mortality, based on an observation that higher settler mortalities were correlated with more extractive institutions whilst not determining economic performance. The results then provided some of the first empirical evidence for the role of institutions in promoting prosperity, albeit, more recent research by Raphael Auer suggests that settler mortality might produce biased estimators due to its negative impact on growth.  

Finally, Acemoglu’s recent research on institutions has focused on the role of democracy in growth. His article “Democracy Does Cause Growth” arguably provides the most thorough analysis of the role of inclusive political institutions on growth, covering over 184 countries from 1960 to 2010, using a measure of democracy based on a composite of several approaches found in the literature. The results reaffirm that inclusive institutions promote prosperity, with democracy promoting growth by encouraging economic reform, improving fiscal capacity, and increasing the provision of schooling and healthcare, and show that contrary to popular belief, the stage of development does not affect this relationship.  

Acemoglu’s research on institutions, even if some of his earlier work underplays the role of other factors, has illuminated our understanding of development, helping academics and policymakers around the globe to promote prosperity.