The laureates illustrate the impact of extractive versus inclusive institutions with the example of the contemporary cross-border city of Nogales, which is divided between the northern half in the U.S. state of Arizona and the southern half in Mexico. Historically, the Spanish colonizers imposed extractive institutions on the densely populated Aztec empire; more-inclusive institutions were developed in areas that later became the United States and Canada. As a result, northern Nogales in Arizona is significantly more prosperous than its southern counterpart in Mexico. This example underscores how the historical establishment of inclusive or extractive institutions can lead to lasting economic divergence even within closely located regions.
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