Institution vs. strategy: the determinant of development success or failure

The pursuit of dynamic and inclusive economic development is a common goal for countries worldwide. The 2024 Nobel laureates in Economics, Acemoglu, Johnson, and Robinson, posited that institutions are endogenous and are the fundamental determinant of development success or failure. However, we argue that their hypothesis does not align with cross-sectional and historical evidence. From the perspective of New Structural Economics, this paper contends that a comparative-advantage-following development strategy is the key to an economy’s dynamic growth and equitable income distribution. Institutions, including aspects such as corruption, openness, and expropriation risks, are themselves endogenous to the choice of development strategies. Our proposition is supported by cross-country empirical evidence. Finally, the paper points out that for a developing country’s government, adopting a comparative-advantage-following development strategy is more conducive to guiding the country’s economic development than adopting an inclusive institution as proposed by Acemoglu, Johnson, and Robinson. This is because an exogenously imposed institution is unlikely to be effective.