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Mahesh

15/10/24 09:16 AM IST

Nobel Prize in Economics

In News
  • The Royal Swedish Academy of Sciences recently awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2024 to three US-based economists.
About the discovery
  • The three laureates have distinguished between inclusive and extractive institutions.
  • An inclusive institutional framework refers to the existence of democracy, law and order, protection of property rights, etc.
  • By contrast, an extractive institutional framework typically refers to a lack of rule of law, of power being concentrated in the hands of a few (autocracy or dictatorship), and the associated risks of expropriation.
  • These two opposite types of institutional frameworks lead to very different incentives for people in an economy or society.
  • For instance, if people are assured that their property will not be taken away at will, or that their incomes and profits will be protected for generations, they tend to focus on boosting long-term growth and prosperity.
  • In the absence of an inclusive institutional framework, the incentives collapse, undermining longer-term prosperity.
  • The laureates examined the European colonisation of large parts of the world, and summarised their findings in a paper titled ‘The Colonial Origins of Comparative Development: An Empirical Investigation’, which was first published in The American Economic Review in 2001.
  • They found that one important explanation for the current differences in prosperity is the political and economic systems that the colonisers introduced, or chose to retain, from the 16th century onward.
  • More precisely, they found that “in some colonies, the purpose was to exploit the indigenous population and extract natural resources to benefit the colonisers”, while in other cases, “the colonisers built inclusive political and economic systems for the long-term benefit of European settlers”.
Source- Indian Express

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