{"id":1655,"date":"2025-10-14T13:57:52","date_gmt":"2025-10-14T13:57:52","guid":{"rendered":"https:\/\/armotto.com\/?p=1655"},"modified":"2025-10-20T15:51:02","modified_gmt":"2025-10-20T15:51:02","slug":"how-this-years-nobel-winners-changed-the-thinking-on-economic-growth","status":"publish","type":"post","link":"https:\/\/armotto.com\/index.php\/2025\/10\/14\/how-this-years-nobel-winners-changed-the-thinking-on-economic-growth\/","title":{"rendered":"How this year\u2019s Nobel winners changed the thinking on economic growth"},"content":{"rendered":"
The prizewinners were announced at a ceremony in Stockholm.<\/span> EPA\/ANDERS WIKLUND SWEDEN OUT<\/a><\/span><\/figcaption><\/figure>\n

What makes some countries rich and others poor? Is there any action a country can take to improve living standards for its citizens? Economists have wondered about this for centuries. If the answer to the second question is yes, then the impact on people\u2019s lives could be staggering. <\/p>\n

This year\u2019s Sveriges Riksbank Prize in Economic Sciences (commonly known as the Nobel prize for economics<\/a>) has gone to three researchers who have provided answers to these questions: Philippe Aghion, Peter Howitt and Joel Mokyr. <\/p>\n

For most of human history, economic stagnation has been the norm<\/a> \u2013 modern economic growth is very recent from a historical point of view. This year\u2019s winners have been honoured for their contributions towards explaining how to achieve sustained economic growth.<\/p>\n

At the beginning of the 1980s, theories around economic growth were largely dominated by the works of American economist Robert Solow. An important conclusion emerged: in the long-run, per-capita income growth is determined by technological progress. <\/p>\n

Solow\u2019s framework, however, did not explain how technology accumulates over time, nor the role of institutions and policies in boosting it. As such, the theory can neither explain why countries grow differently for sustained periods nor what kind of policies could help a country improve its long-run growth performance.<\/p>\n

It\u2019s possible to argue that technological innovation comes from the work of scientists, who are motivated less by money than the rest of society might be. As such, there would be little that countries could do to intervene \u2013 technological innovations would be the result of the scientists\u2019 own interests and motivations. <\/p>\n

But that thinking changed with the emergence of endogenous growth theory<\/a>, which aims to explain which forces drive innovation. This includes the works of Paul Romer<\/a>, Nobel prizewinner in 2018, as well as this year\u2019s winners Aghion and Howitt<\/a>. <\/p>\n

These three authors advocate for theories in which technological progress ultimately derives from firms trying to create new products (Romer) or improve the quality of existing products (Aghion and Howitt). For firms to try to break new ground, they need to have the right incentives.<\/p>\n

Creative destruction<\/h2>\n

While Romer recognises the importance of intellectual property rights to reward firms financially for creating new products, the framework of Aghion and Howitt outlines the importance of something known as \u201ccreative destruction\u201d. <\/p>\n

This is where innovation results from a battle between firms trying to get the best-quality products to meet consumer needs. In their framework, a new innovation means the displacement of an existing one.<\/p>\n

In their basic model, protecting intellectual property is important in order to reward firms for innovating. But at the same time, innovations do not come from leaders but from new entrants to the industry. Incumbents do not have the same incentive to innovate because it will not improve their position in the sector. Consequently, too much protection generates barriers to entry and may slow growth. <\/p>\n

But what is less explored in their work is the idea that each innovation brings winners (consumers and innovative firms) and losers (firms and workers under the old, displaced technology). These tensions could shape a country\u2019s destiny in terms of growth \u2013 as other works have pointed out, the owners of the old technology may try to block innovation.<\/p>\n

This is where Mokyr complements these works perfectly by providing a historical context. Mokyr\u2019s work focuses on the origins of the Industrial Revolution and also the history of technological progress from ancient times until today. <\/p>\n

Mokyr noted that while scientific discoveries were behind technological progress, a scientific discovery was not a guarantee of technological advances. <\/p>\n

It was only when the modern world started to apply the knowledge discovered by scientists to problems that would improve people\u2019s lives that humans saw sustained growth. In Mokyr\u2019s book The Gifts of Athena, he argues that the Enlightenment was behind the change in scientists\u2019 motivations.<\/p>\n

\n \"illustrated<\/a>
\n The 2025 winners Joel Mokyr, Philippe Aghion and Peter Howitt.<\/span>
\n Ill. Niklas Elmehed \u00a9 Nobel Prize Outreach<\/a><\/span>
\n <\/figcaption><\/figure>\n

In Mokyr\u2019s works, for growth to be sustained it is vital that knowledge flows and accumulates. This was the spirit embedded in the Industrial Revolution and it\u2019s what fostered the creation of the institution I am working in \u2013 the University of Sheffield<\/a>, which enjoyed financial support from the steel industry in the 19th century. <\/p>\n

Mokyr\u2019s later works emphasise the key role of a culture of knowledge in order for growth to improve living standards. As such, openness to new ideas becomes crucial.<\/p>\n

Similarly, Aghion and Howitt\u2019s framework has become a standard tool in economics. It has been used to explore many important questions for human wellbeing: the relationship between competition and innovation<\/a>, unemployment and growth<\/a>, growth and income inequality<\/a>, and globalisation<\/a>, among many other topics<\/a>.<\/p>\n

Analysis using their framework still has an impact on our lives today. It is present in policy debates around big data<\/a>, artificial intelligence<\/a> and green innovation<\/a>. And Mokyr\u2019s analysis of how knowledge accumulates poses a central question around what countries can do to encourage an innovation ecosystem and improve the lives of their citizens.<\/p>\n

But this year\u2019s prize is also a warning about the consequences of damaging the engines of growth. Scientists collaborating with firms to advance living standards is the ultimate elixir for growth. Undermining science, globalisation and competition might not be the right recipe.<\/p>\n

\"The<\/p>\n

Antonio Navas does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

The prizewinners were announced at a ceremony in Stockholm. EPA\/ANDERS WIKLUND SWEDEN OUT What makes some countries rich and others poor? Is there any action a country can take to improve living standards for its citizens? Economists have wondered about this for centuries. If the answer to the second question is yes, then the impact…<\/p>\n","protected":false},"author":1,"featured_media":1657,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[],"class_list":["post-1655","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-europe"],"_links":{"self":[{"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/posts\/1655","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/comments?post=1655"}],"version-history":[{"count":3,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/posts\/1655\/revisions"}],"predecessor-version":[{"id":1660,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/posts\/1655\/revisions\/1660"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/media\/1657"}],"wp:attachment":[{"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/media?parent=1655"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/categories?post=1655"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/armotto.com\/index.php\/wp-json\/wp\/v2\/tags?post=1655"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}