The Importance of Institutions

Why Nations Fail

In this course, Professor James Robinson (University of Chicago) lays out the arguments from his book, which he co-authored with Daron Acemoglu, Why Nations Fail: The Origins of Power, Prosperity, and Poverty (2012). In the first module, we look at how the world is divided along the lines of prosperity between rich and poor countries. After that, we explore the key concepts of extractive and inclusive institutions that explain the difference between poor and rich countries. In the third module, we look at why inclusive institutions are so important to sustainable prosperity and why some countries are still able to prosper, in the short-run, under extractive institutions. Following this, in the fourth module, we think about in more detail why the so called “Great Divergence” occurred and how this is related to the concept of extractive and inclusive institutions. After this, we explore why this prosperity was able to spread to some parts of the world but not others, and how this again relates to the idea of extractive and inclusive institutions. Then, in the final module, we discuss why differences between countries persist, and how poor countries can transition from extractive to inclusive societies and become prosperous in the process.

The Importance of Institutions

In this module, we look at how the world is divided along the lines of prosperity between rich and poor countries. In particular, we focus on: (i) the differences in living standards throughout the world, including a controlled comparison between Nogales in the United States and Nogales in Mexico; (ii) some popular theories ‘that don’t work’ about why this division exists, including Montesquieu’s idea of geography causing prosperity and poverty; (iii) the institutional patterns across the world and how these cause differences in prosperity; (iv) why we should focus on institutions when looking at economic prosperity, including the idea of incentives; and (v) what incentives exist in rich and poor countries, including the examples of Bill Gates and Carlos Slim.