Nobel Prize in Economic Sciences 2025
Context:
The Royal Swedish Academy of Sciences awarded the “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2025” — popularly called the Nobel prize for economics — to Joel Mokyr, Philippe Aghion and Peter Howitt “for having explained innovation-driven economic growth”.
Their work explains why sustained economic growth became the norm over the past two centuries after millennia of economic stagnation.
Laureates and their Contributions
All three laureates explained how innovation sustains long-term economic growth, addressing one of the most fundamental economic puzzles —
“Why did humanity experience centuries of stagnation before entering an era of sustained growth during and after the Industrial Revolution?”
Joel Mokyr:
An economic historian recognized for using historical sources to identify the prerequisites for sustained growth based on technological innovation.
He explained that sustained growth emerged when scientific understanding combined with societal acceptance of change, enabling continuous technological progress.
Key Concepts:
Mokyr distinguished between "prescriptive" knowledge (knowing 'how' things work) and "propositional" knowledge (knowing 'why' they work)
He argued that the Scientific Revolution (16th–17th centuries) and Enlightenment were crucial because they combined both types of knowledge to create "useful" knowledge, leading to technological advancements.
A critical factor was society's openness to change and its acceptance of "creative destruction."(a process that produces both winners and losers but is essential for growth)
Philippe Aghion & Peter Howitt
They examined modern economies and found that beneath stable national GDP growth lies constant firm-level churning:
Every year, 10% of companies exit and 10% new firms enter the U.S. economy.
Jobs are created and destroyed at a large scale — a process of economic dynamism.
They were recognized for developing a mathematical model for their theory of sustained growth through “creative destruction”
Key Concepts:
Creative Destruction: Their model shows how a constant upheaval at the firm level (where new and better products replace old ones) lays the foundation for stable macroeconomic growth
Incentive for Innovation: They explained that patents create temporary monopolies and profits, which in turn creates a powerful incentive for other companies to compete and out-innovate them. i.e.,
Cycle of innovation → Monopoly → competition → New innovation.
General Equilibrium Model: Theirs was the first macroeconomic model for creative destruction to show a "general equilibrium," linking markets for production, R&D, finance, and household savings, which cannot be analyzed in isolation.
Both provided the first formal, macroeconomic model of creative destruction, demonstrating how firm-level innovation and competition can sustain long-term economic growth.