Two cities, one fence, three times the income

There is a city cut in two by the border between the United States and Mexico. It is called Nogales. The northern half is in Arizona, the southern half in Sonora.

They share the climate. They share the geography. They even share families, split by the line. And yet average income in Nogales, Arizona, is three times higher than in Nogales, Sonora. Life expectancy is higher to the north, crime is lower, and public services work better.

Geography cannot explain the gap: it is the same on both sides of the fence. Culture does not seem to explain it either, because the people are the same.

For many economists, the answer is institutions: the formal and informal rules that decide who holds power and who keeps the fruits of their work. The two Nogales live under different rules, and that is where the difference comes from. The research behind that idea won the 2024 Nobel Prize in economics.

But it is not the only answer, and it has been put on trial. One of the most striking tests comes from the mines of Potosí. From the late 1500s until 1812, some districts of Peru and Bolivia were forced to send workers to those mines, while others a few miles away, on similar land, were not. Two centuries after the forced labor ended, households in the former mine districts still consume about a quarter less, and their children are more often chronically malnourished.

Then there is the case that refuses to fit: China, which has grown at breakneck speed since 1978 under rules nobody would call inclusive.

So is it the rules, the land, the diseases, or the ideas a society holds about work and invention? Each answer explains something the others miss, and economists still argue about how much each one matters.

The World Today, the fifth and final book of Everything Has a Price, has a whole chapter on Nogales that lays out every answer with its evidence and its weak spots, so you can judge for yourself.