Institutions for development

Growth is driven by technological dynamism even more than by security for private capital

- NITIN DESAI

he 2024 Nobel Prize in Economics was awarded to Daron Acemoglu, Simon Johnson, and James how political and economic institutions shape long-term prosperity. The substance of their argument is found in a seminal article by them on colonial impact on development, which argues that the extent of settler mortality, or to put it more colloquially, the death rate of immigrant settlers, determined the difference between colonies like the US, Canada, Australia and New Zealand and the other colonies, particularly in Africa and Asia. The North American and Oceania colonies became settler colonies where European institutions relevant for property rights were established and led to upward growth. However, in the Asian and African colonies, institutions supportive of growth were not introduced and the colonial rule was essentially extractive.

This argument is oversimplified when it comes to colonialism in India and Southeast Asia. There, the absence of settler settlements is a product not just of climate-related mortality threats to the Europeans, but also their incapacity to overwhelm, eliminate, and isolate the local inhabitants and their rulers as they did with the indigenous people in North America and Oceania.

Moreover, their interest in Asia certainly was largely extractive rather than for settlement purposes.

They go on to argue that the difference in settler intentions based on threatened mortality experience explains even the current difference in income, except that the current estimate they use is for 1995. Surely, the famous Table 1 from their paper, which correlates current gross domestic product (GDP) adjusted for purchasing power parity with their estimate of "settler mortality" during colonial times will look substantially different with today's GDP and will most likely challenge their explanation for current difference by 2050.