Daron Acemoglu, Simon Johnson and James Robinson (AJR) have emphasised the role of institutions in development but there has been criticism of this approach as privileging western liberal institutions.
Author
Rohith Jyothish, Assistant Professor, Jindal School of International Affairs, O.P. Jindal Global University, Sonipat, Haryana, India.
Summary
The Great Divergence is a term used to describe the gap in economic and political development between the west and the east. It emerges from this idea that in the 17th and the 18th centuries, the advantages that western Europe enjoyed due to industrialisation allowed them to project political power elsewhere. This in turn helped them to reap economic rewards. One of the most relevant findings that emerged from this scholarship is the idea that institutions established during colonialism can have persistent effects many years after countries transitioned to sovereign rule.
The winners of this year’s Economics Nobel, or the Sveriges Riksbank Prize awarded for economic sciences, Daron Acemoglu, Simon Johnson and James Robinson (AJR), pioneers in new institutional economics, emphasised the role of institutions in the direction of development. Institutions are constraints on human behaviour, the rules of the game in the form of law and order that prevent the state or any other party from the coercive use of force on those who cannot defend themselves. This can take the shape of the constitutional limits on the powers of an executive. Institutions exert their effect through incentives, such as the traffic fines on a busy street that nudges a driver from breaking the speed limit.
Published in: The Hindu
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