Question

According to Acemoglu and Robinson, how do free markets, property rights and inclusive economic institutions (not extractive ones) affect a country’s economic growth?

Answer 1

Acemoglu and Robinson were authors of the famous economic journal, which was known as "Why Nations Fail". They widely wrote, why some countries are better than others in managing themselves because of the rise of institutions and governments which have realized the needs and wants of the countries as a whole respectively.

They emphasized on the fact that developed nations are those, which have free markets, protected by property rights and laws that protect contracts and have institutions that allow for economic development by being inclusive i.e. providing the benefits of development to all parts and sections of the society.

They rightfully said that in such markets, restrictions are very few, and limited in approach such that markets and labor can therefore prosper. The quality of products and services sold in these countries are relatively higher. Further people have faith in government institutions and realize that these are important for the country because of strict and stringent property and contract laws that protect and give power to the society.

The gave examples of countries like the United States of America or the United Kingdom in which such policies have led to the development of the state and have increased the overall quality of life.

On the other hand, both argued, that in some countries where these practices are negated and not followed, the countries fail and do not realize that these policies are important for a countries success largely see poverty in the long run even if they rise for a couple of years. They highlighted that the rise of extractive institutions are more likely in regions which are hit by dictatorship such as North Korea, Zimbabwe or Egypt which were or are having a colonial mindset while forming their institutions and have therefore rapidly failed.

Thus they highlighted the key differences between wealthy nations and nations that have failed.

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