Question

Acemoglu and Robinson, in their book entitled, “Why Nations Fail,” categorize institutions into two types: those that are ‘inclusive’ and those that are ‘extractive’

1. What are the major characteristics of these two types of institutions?
2. Why are institutions important for long run economic development?
3. Why are institutions ‘persistent’?
4. Is economic growth possible under extractive institutions?

Answer 1

a. The inclusive countries are those in why the political factors decide the future and prosperity of the country. The authors have cited the example of North Korea and South Korea. South Korea has developed itself as an economically stable country as its government was a forward thinker and they have given the people rights to make themselves dependent so that the economy could be developed and economic stability can be maintained. On the other side, there is North Korea where the people are still poor and they don't have a say in the economic development of the country. The country is headed by a dictator and he does not allow people to have their opinion. This is the reason of being a poor country.

The extractive countries are those where the people are not free to express their views in the political and economic decisions of the country. The people are exploited by the elite members of the country and they extract the wealth of the poor people or the ones who are not in the elite group of people. The wealthy people do not welcome the non-wealthy people in economic issues. Due to this, economic growth remains motionless.

b. The institutions are important for long-run economic development as the economic activities are highly dependent upon the institution. The institutions help in increasing the productivity of the people and hence, these are important.

c. The institutions are persistent as they decide the economic development of the country. The people who work in an institution for a longer period of time Then they are able to develop a sense of thinking for the development of the nation. They also lay down the foundations for the future of the country. Therefore, the institutions are persistent so the economy remains persistent.

d. Economic growth is not possible in an extractive institution as the investors and the business entrepreneurs are not able to work freely. They are exploted by the elite and the wealthy people of the society. Even the citizens are not able to express their views in the political and the economic matters of the country and therefore, economic growth is not possible.