Core concepts
Acemoglu and Robinson (2012) divided economic and political institutions into inclusive and extractive. Inclusive economic institutions secure property rights, impartial law and free entry, letting many people invest and innovate. Inclusive political institutions are sufficiently centralized yet pluralistic. Extractive institutions, by contrast, let a small elite monopolize power and wealth and extract resources from the majority. The theory builds on North (1990), who saw institutions as 'the rules of the game', and on new institutional economics.
Empirical evidence
Acemoglu, Johnson and Robinson (2001) argued that where European settler mortality was high in colonial times, extractive institutions were set up, and where it was low, inclusive settler institutions were built, and that this explains today's income gaps. They (2002) also explained a 'reversal of fortune', in which regions rich 500 years ago are now poor, by institutions. Institutions diverge at critical junctures, after which extractive institutions persist in a vicious circle serving elites while inclusive ones reinforce themselves in a virtuous circle. Extractive institutions are closely tied to rent-seeking and the resource curse.
Critiques and debates
Sokoloff and Engerman (2000) argued that factor endowments such as land and labor produced unequal institutions, suggesting institutions may result from deeper causes. Glaeser and colleagues (2004) countered that human capital is a more fundamental factor driving both growth and good institutions. Albouy (2012) questioned the reliability of the settler mortality data. How to explain cases such as China's rapid growth under extractive political institutions is also debated. Even so, Acemoglu, Johnson and Robinson received the 2024 Nobel Prize in economics, recognizing the influence of this work.
FAQ
- What are inclusive and extractive institutions in simple terms?
- Countries where many people can take part fairly in the economy become rich, while those where a few monopolize wealth stay poor.
- Is China a counterexample?
- It is debated because China grew fast under extractive political institutions; the authors argue such growth is hard to sustain.
Sources reviewed: 2026-10-26
References
- Acemoglu, D., & Robinson, J. A. (2012). Why nations fail: The origins of power, prosperity, and poverty. Crown Business. The main statement of the theory.
- Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369–1401. Settler mortality evidence.
- Acemoglu, D., Johnson, S., & Robinson, J. A. (2002). Reversal of fortune: Geography and institutions in the making of the modern world income distribution. Quarterly Journal of Economics, 117(4), 1231–1294. Reversal of fortune.
- Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a fundamental cause of long-run growth. In P. Aghion & S. N. Durlauf (Eds.), Handbook of economic growth (Vol. 1A, pp. 385–472). Elsevier. Theoretical framework.
- North, D. C. (1990). Institutions, institutional change and economic performance. Cambridge University Press. Institutions as rules of the game.
- Sokoloff, K. L., & Engerman, S. L. (2000). History lessons: Institutions, factor endowments, and paths of development in the New World. Journal of Economic Perspectives, 14(3), 217–232. Factor endowments.
- Glaeser, E. L., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2004). Do institutions cause growth? Journal of Economic Growth, 9(3), 271–303. Human capital critique.
- Albouy, D. Y. (2012). The colonial origins of comparative development: An empirical investigation: Comment. American Economic Review, 102(6), 3059–3076. Data critique.