Acemoglu - Root Causes: A historical approach to assessing the role of institutions in economic development

What is the main argument?

• institutions are the fundamental cause of differences in wealth between countries, rather than geography

What is the problem of inequality?

• there are huge differences in income and standards of living globally

• problems like outdated technology or poor education are only proximate causes and do not explain WHY those places lack better systems 

What are the two candidates to explain global income disparity?

• geography - forces of nature like climate and disease environment shape a society’s tech and incentives, thus leading to poverty 

• institutions - societies that have good institutions that encourage investment in human capital, machinery, and better tech, lead to economic success

What makes an institution good?

• enforcement of property rights for many

• constraints on elites so they can’t steal incomes/investments

• equal opportunity for broad groups

What was the test the author did and the result?

• Looked at places the europeans had colonized via institutions but had not changed the geography

  • found that places that had wealth pre-colonial status are among the poorest today - these places had extractive institutions

  • found that places that had no wealth pre-colonial status are among the richest today - these places had good institutions

• disproves geography hypothesis

• large populations already established made the Europeans more likely to coerce and extract

Why do bad institutions persit?

• institutions determine not only the total wealth but also how the wealth is divided

• when a move to better institutions would significantly reduce the portion received by powerful groups (elites), they often clock the change, even if it would make the country richer overall

• this is why extractive institutions often persist, even after colonies gain independence