It's wrong, of course. Acemoglu wrote:
How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically.Except, of course, another big difference is that, on the north side of Nogales, if the labor market there is bad, a person could easily move to Texas, New York, or California, whereas on the Mexican side, they could move to Chiapas... (Another difference is that on the American side, they could probably get a job w/ a US defense contractor, which they could not get on the Mexican side...)
And yet they are far from the same.
On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it's $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty.
The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity.
Hence, you've got to compare the geography of the US as a whole compared to that of Mexico as a whole. And the geography of the US is similar with the geography of Europe and contains an ocean with trade winds which make it effectively close to europe. the only part of mexico similar to europe are the central highlands. these highland areas are among the most developed in Mexico, and also extremely remote from Europe.
The problem is that Acemoglu has cherry-picked his example. Why not compare Harlem to SoHo in NYC? They've got the same institutions, yet couldn't be more different, no? Or Watts to Orange county? San Fran to Oakland? Or almost any inner city to the surrounding suburbs? We're talking huge income differences across short distances, w/ institutions fixed. One can hardly infer from any of these examples that institutions and geography don't matter...
Acemoglu's example just doesn't say what he thinks it says.