The Institutional Hypothesis
Institutional economics, championed by Daron Acemoglu and James Robinson, posits that the “rules of the game”-property rights, rule of law, and political structures-are the fundamental cause of economic growth. They distinguish between Inclusive Institutions (which distribute power and protect property rights, fostering innovation) and Extractive Institutions (designed by elites to extract resources from the masses).
The Geography Hypothesis
Conversely, economists like Jeffrey Sachs argue for geographical determinism. Tropical climates face higher burdens of infectious diseases (e.g., malaria) and often have poorer soil quality or landlocked borders, directly impeding labor productivity and increasing trade costs.
Capital Accumulation and the Solow Model
The Solow-Swan growth model focuses on capital accumulation and technological progress. Its core production function is:
$$ Y = A K^\alpha L^{1-\alpha} $$
In this framework, nations stagnate when they reach their steady state, where investment only covers depreciation. Sustained long-term growth is exclusively driven by $A$, Total Factor Productivity (TFP).