According to Acemoglu, that’s pretty much all you need to know. From the abstract of his 2001 paper:

Our estimates imply that differences in institutions explain approximately three-quarters of the income per capita differences across former colonies. Once we control for the effect of institutions, we find that countries in Africa or those farther away from the equator do not have lower incomes.

Now, you might think that Acemoglu’s model for predicting national wealth in ex-colonies, such as the United States or New Guinea, is:

1. More white people means more wealth.

How dare you think such a thing! Instead, it’s a two-step process:

1. More white people hundreds of years ago means better institutions today.
2. Better institutions then means more wealth today.

Two steps are better than one, according to Occam’s Butter Knife.

In Why Nations Fail, Acemoglu and Robinson have extended their Inclusive Good/Extractive Bad dichotomy. If anything good ever happened anywhere in world history, it was due to “inclusive institutions”€ and vice-versa. Sir Karl Popper, the philosopher of science, would have torn his hair out trying to read Why Nations Fail. He would have found Acemogluism as unfalsifiable (and thus as unscientific) as Freudianism and Marxism.

Now, I’m a big fan of inclusive institutions and don’t like exploitative ones. But Acemoglu’s dogma strikes me as a tad superficial. For instance, he focuses on the border cities of Nogales, Arizona, and Sonora. Why is the American side richer? It must be because America has better institutions.

OK…but what makes for better institutions north of the border? After all, Mexico has had plenty of opportunity to study American institutions. Could the enduring differences have something to do with America having a lot of Americans?

What’s the real story behind good and bad institutions? Two brave economists from Africa, Isaac Kalonda-Kanyama of the University of Johannesburg and Oasis Kodila-Tedika of the University of Kinshasa, have tackled this question head-on in a new study entitled Quality of Institutions: Does Intelligence Matter? Their conclusion:

We analyze the effect of the average level of intelligence on different measures of the quality of institutions, using a 2006 cross-sectional sample of 113 countries. The results show that average IQ positively affects all the measures of institutional quality considered in our study, namely government efficiency, regulatory quality, rule of law, political stability and voice and accountability. The positive effect of intelligence is robust to controlling for other determinants of institutional quality.

Don”€™t expect Kalonda-Kanyama and Kodila-Tedika to get big career boosts from their finding.