Daron Acemoglu’s article “Root Causes” explores the gaps in living standards and development levels between rich and poor countries. While there are many proximate causes of poverty within countries such as a lack of education or outdated technology, Acemoglu focuses on the fundamental causes.

The article provides two fundamental hypotheses to explain the gaps: the geographical hypothesis and the institutional hypothesis. The geographical hypothesis states that the underlying causes for differences in prosperity come from a country’s geography, climate, and ecology. These factors shape a society’s technological advantage and influence the incentives of its inhabitants. For example, a country with fertile soil may have an incentive to excel in agriculture and develop advanced technologies for harvesting. However, while nature does have an impact on economic well-being, it is shown that human influence is stronger. Segwaying into the institutional hypothesis, which focuses on the human factors impacting prosperity.

Institutions play a crucial role in determining a country’s economic success. A “good institution” exhibits these key characteristics. Firstly, property rights are enforced which provides individuals with confidence that their assets are protected under the law. This confidence encourages investment which contributes to economic development. Secondly, constraints are placed on the actions of powerful individuals, such as elites and politicians. This ensures a sense of equality throughout the society which encourages broader participation in economic activities. Unfortunately, many countries nowadays lack these good institutions, with individuals lacking