For over a decade in the global economy, Daron Acemoglu from MIT, Simon Johnson also from MIT and James Robinson from the University of Chicago have been said to be “strongly going for a Nobel prize.” However, they are not pioneers in demonstrating the role of institutions in economic development, making use of comparative analyses and unique “natural experiments” of different countries. Nobel Prizes in this field have already been awarded to the likes of Hayek, Myrdal, Shultz, Lewis, Williamson, Ostrom, North, Fogel, Deaton, Dufflo, and Banerjee. Unfortunately, people such as Alchian, Downs, Rothbard, Demsetz, and Barro have been overlooked, although the latter still has a chance. It should also be remembered that for over 30 years, comparative studies indicating the benefits of democracy and the free market for national development have been conducted at SGH by Leszek Balcerowicz.
This year’s laureates are very well known not only in the environment of economic specialists, as is usually the case, but also in broader public opinion, thanks to their best-selling, popular science books – “Why Nations Fail” and “The Narrow Corridor. States, Societies and the Fate of Liberty,” also published in Poland. They have also published many very “hard” scientific papers, mainly in the “American Economic Review,” in which they use original statistical research and mathematical models that use game theory to try to justify their research hypotheses, like many other laureates.
For supporters of liberal democracy and the free market, their research is a very valuable argument of support, even though socializing economists also take benefits from it. This is because the laureates point to the successes of socially inclusive systems, juxtaposing them with – also capitalist – extractive or exploitative systems. They do not forecast long-term durability for China’s authoritarian success, which may Popperistically falsify the results of their research. They are interested in a very long period – they see the sources of poverty in many countries of the world in institutional changes even from several hundred years ago.
The laureates’ favorite example is the Mexican and American city of Nogales, which, as a result of turbulent history, has divided into a part remaining in Mexico and a part belonging to the USA – it is not necessary to list the huge consequences of this fact for residents on both sides of the border. However, their outstanding research idea, both methodologically and substantively, is the analysis of the colonization of many countries by European states. By statistically and model analyzing these “grand natural experiments” that history has created for them, they note that countries that developed well before colonization fell into development problems that are noticeable to this day. Those countries, however, which were in a worse economic situation, benefited from colonization and are developing better today. This subsequent “paradox” – joining an already considerable collection of theoretical economic paradoxes – comes from the fact that in countries less developed before colonization, it was easier to implement inclusive institutions of the free market and democracy, while countries that were more developed and densely populated were easier to exploit and harder to settle by newcomers from Europe. These results, solidly documented statistically and explained by a model, are supposed to show the mechanism of making institutional changes that favor or limit long-term economic development.
Adam Noga is a professor of economics at the Leon Koźmiński Academy, a member of the Polish Economists Society.
Source: https://ceo.com.pl/tegoroczna-nagroda-nobla-w-ekonomii-za-badania-nad-wplywem-instytucji-na-rozwoj-gospodarczy-49902
