16 Oct 2025
The Nobel Prize in Economics was awarded to Philippe Aghion, Peter Howitt, and Joel Mokyr for their contributions to understanding sustainable economic growth. Their work collectively explains how continuous technological innovation and the process of 'creative destruction' drive long-term economic prosperity.
The Nobel Prize in Economics recognized Philippe Aghion, Peter Howitt, and Joel Mokyr for expanding the understanding of how innovation, competition, and dynamism foster long-term economic growth. The central theme of their award-winning research was the explanation of sustainable economic growth underpinned by technological innovation and the concept of 'creative destruction'.
The world has experienced unprecedented economic growth over the past two centuries, driven by a continuous stream of technological innovation. Early models, such as the Solow model from the 1950s, attributed growth to investment in machinery and labor but predicted its eventual cessation, failing to explain the origin of innovation.
Aghion and Howitt developed a mathematical model in 1992 demonstrating how firms improve production and introduce new, higher-quality products, leading to investment and eventually replacing older, less competitive firms. Their theory positions innovation as an internal, or endogenous, element of the economic system, driven by competition, the pursuit of profit, and the desire for progress.
Growth, according to Aghion and Howitt, is fundamentally generated through 'creative destruction,' a process that is both creative in fostering innovation and destructive in rendering older products and technologies obsolete. Each wave of innovation boosts productivity and elevates the entire economy, though this process can also be lengthy and generate inequality.
Joel Mokyr, an economic historian, examined the historical mechanisms that enabled scientific progress and practical applications to reinforce each other, leading to sustainable growth. He highlighted how 18th-century Europe's cultural shift towards empiricism and inquiry, replacing dogma, fostered a link between scientific knowledge and traditional production, laying the foundation for continuous growth.
Mokyr emphasized the critical importance of a society that embraces new ideas and permits change, recognizing that challenging existing interests is inherent to the innovation process. His work suggests that economic growth is not merely a result of machinery and factories but fundamentally stems from transformations in human thought and cultural values.
Combining the perspectives of Aghion, Howitt, and Mokyr provides a comprehensive understanding of growth, where Mokyr’s insights address the intellectual and cultural environment enabling innovation, while Aghion and Howitt focus on the market dynamics of competition and technological progress. All three researchers underscore the crucial role of appropriate policymaking, as government actions can either encourage or stifle innovation.
The research collectively identifies innovation as the primary driver of long-term growth, with healthy competition serving as its main incentive, while excessive monopolies suppress it. Effective government policies must strike a balance between supporting innovation and mitigating social inequalities, with education, academic freedom, and intellectual property rights forming the bedrock of technological advancement.
The current era of artificial intelligence exemplifies Schumpeterian creative destruction, where older industries face obsolescence while global productivity increases. A central challenge for modern governments, as warned by Aghion, involves balancing technological advancement with social justice and job security. True societal progress, extending beyond GDP metrics, requires supporting knowledge, science, culture, and human imagination, as these factors fundamentally drive long-term well-being and development.
Real progress occurs when societies support knowledge, science, culture, and human imagination, driving long-term economic growth beyond mere production of goods and services.
| Laureate(s) | Core Contribution | Key Concept | Policy Implication |
|---|---|---|---|
| Philippe Aghion & Peter Howitt | Endogenous Growth Theory, Mathematical Model of Innovation | Creative Destruction through competition-driven innovation | Encourage innovation while addressing social costs (e.g., retraining) |
| Joel Mokyr | Historical Context of Innovation and Industrial Revolution | Intellectual and cultural environment fostering scientific progress | Foster societies that embrace new ideas and allow for change |
| Combined Views | Holistic understanding of economic growth | Growth as a social, cultural, and technological phenomenon | Government policies must balance innovation support with social equity and foundational freedoms |
