Daron Acemoglu, Simon Johnson and James A. Robinson (collectively "AJR") are the economists awarded the 2024 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel "for studies of how institutions are formed and affect prosperity." Their framework, elaborated in the seminal paper "The Colonial Origins of Comparative Development: An Empirical Investigation" (American Economic Review, 2001) and the bestselling book Why Nations Fail (Acemoglu and Robinson, 2012), argues that the wealth or poverty of nations is determined principally by their institutions rather than by geography (contra Jared Diamond), climate, or culture (contra Max Weber). Institutions that are inclusive—securing property rights, enforcing contracts, providing a level playing field, and dispersing political power—generate sustained growth; extractive institutions, which concentrate power and expropriate the many for the few, produce stagnation.
The methodological breakthrough of the 2001 paper was the use of settler mortality as an instrumental variable. AJR observed that where European colonisers faced high mortality from malaria and yellow fever (e.g. the Congo, West Africa), they built extractive "exploitation colonies" to extract resources without settling; where mortality was low (e.g. North America, Australia, New Zealand), they replicated inclusive "neo-Europes" with secure property rights. Because past institutions persist, this colonial pattern explains present income differences—the "reversal of fortune" whereby regions that were relatively rich in 1500 (Mughal India, the Aztec and Inca lands) became relatively poor, while sparsely-populated regions grew wealthy. Settler mortality, plausibly affecting income only through institutions, addressed the endogeneity problem of separating cause from effect. AJR distinguish de jure (constitutional) from de facto (real) political power, and emphasise critical junctures (such as the Black Death or the Atlantic trade) interacting with small institutional differences to drive divergence.
The theory's named illustrations are now textbook staples: the city of Nogales, split between Arizona (USA) and Sonora (Mexico), where identical geography and culture yield divergent prosperity owing to institutions; the contrast between North and South Korea after 1948; and the Glorious Revolution of 1688 in England, which constrained the Crown and catalysed the Industrial Revolution. Critics—including Jeffrey Sachs (geography and disease burden) and David Albouy (questioning the reliability of the mortality data)—dispute the instrument's validity. As of 2026, Acemoglu and Johnson's Power and Progress (2023) extends the framework to technology, arguing that automation and AI distribute gains according to who controls institutional power.
For the General Studies (GS Paper III, Indian Economy) and economy/optional papers, AJR is tested as the leading rebuttal to geographic determinism in the "why nations fail" debate, frequently paired with Douglass North's new institutional economics and the rule of law as a development variable. FSOT and CSS economics sections cite the 2024 Nobel and the inclusive-versus-extractive dichotomy. Typical question angles: define inclusive versus extractive institutions; explain settler mortality as an instrument; or evaluate the institutions-versus-geography debate with reference to colonial legacies and the reversal of fortune.
Example
In 2024 the Royal Swedish Academy of Sciences awarded Daron Acemoglu, Simon Johnson and James Robinson the Economics Nobel for showing how colonial-era institutions explain why Nogales, Arizona thrives while neighbouring Nogales, Sonora languishes.
Frequently asked questions
They argue that inclusive institutions—secure property rights, contract enforcement and dispersed political power—cause long-run prosperity, while extractive institutions cause poverty. Institutions, not geography or culture, are the fundamental driver of comparative development.