Why Are Some Countries Rich and Others Poor?
The 2024 Nobel laureates argue that the primary reason for wealth disparities is the quality of economic and political institutions.
Countries with inclusive institutions tend to experience long-term economic growth, while those with extractive institutions often face stagnation and poverty.
Difference Between Inclusive and Extractive Institutions
Inclusive Institutions:
Secure private property rights.
Democratic governance.
Encourage investment and long-term economic growth.
Extractive Institutions:
Insecure property rights.
Lack of political freedom.
Focus on short-term resource extraction, leading to economic degradation.
Colonial Powers and Institutional Choices
Colonial powers established extractive institutions in areas they did not plan to settle, often due to high mortality risks or other factors (e.g., India).
In contrast, inclusive institutions were set up in places where colonizers intended to settle long-term (e.g., the U.S.), promoting stability and economic growth.
This approach created lasting impacts on the economic trajectories of these regions
Resistance to Inclusive Institutions
Rulers often prefer extractive institutions as they allow for personal gain and resource extraction.
Without the threat of rebellion, there is little incentive for rulers to reform towards inclusive institutions that benefit the broader population.
However, significant threats of popular uprising may push rulers to adopt more inclusive systems to ensure stability and reduce dissent
COMMENTS