Shivanand Pandit
On October 13, 2025, the Royal Swedish Academy of Sciences announced the recipients of the 2025 Nobel Prize in Economics. Joel Mokyr, Philippe Aghion, and Peter Howitt jointly received the prize for their cutting-edge research on innovation-driven economic growth. The Academy stated that their work shows sustained economic growth should not be taken for granted. Throughout most of human history, economic stagnation has dominated rather than growth. The laureates’ research highlights the importance of recognizing and addressing factors that threaten continued growth. Their contributions provide key insights into one of economics’ most fundamental questions: why modern economies thrive while many historical economies remain stagnant.
Unlike the Nobel Peace Prize, the Sveriges Riksbank Prize in Economic Sciences is not considered political. But it still shows how economists and policymakers’ ideas have changed. In the early years, from 1969 onward, the prize was given for research on development and welfare. During the peak of the Washington Consensus, most winners were economists from the Chicago School and supporters of the neoclassical model. After the global financial crisis, the focus shifted to the limits of perfect competition and how labor markets work, with winners studying these issues. In the past two years, the Royal Swedish Academy of Sciences has highlighted research on institutions, innovation, and culture. The 2025 winners are honored for studying how economies and societies respond to innovation and why some cultures encourage it. This likely reflects a wider unease within the policymaking system about the drivers of future growth—especially in the West, where there is concern about falling behind China in the technological race.
Joel Mokyr began exploring the cultural and intellectual foundations of economic growth in the 1970s, producing extensive research on European economic history over the ensuing decades. In 1992, Aghion and Howitt published their seminal paper on Schumpeterian growth and have since expanded the framework through decades of research on innovation, institutions, and growth policy. Together, their work represents more than 40 years of continuous scholarly contribution, shaping both economic theory and policy.
A central question in economics has long been what drives long-term growth. The Solow model of the 1950s showed that capital and labor account for part of growth but treated technological progress as an external factor, leaving its origins unexplained. Mokyr, Aghion, and Howitt sought to bring innovation into the heart of the growth model, examining the cultural, institutional, and economic forces that drive it. Mokyr turned to history to understand why some societies foster innovation, while Aghion and Howitt developed models showing how incentives, competition, and policy shape technological change. Together, their work provides a post-Solow framework in which innovation is endogenous, systematic, and central to economic growth.
Their research offers crucial insights in a world facing slowing productivity growth. It highlights why fostering innovation is essential for sustained growth, especially in economies that can no longer rely on capital accumulation alone. Their findings provide governments with a range of policy tools—from investing in education and research to promoting healthy competition—to nurture innovation ecosystems. Mokyr’s focus on knowledge and culture underscores that supporting innovation is not only a matter of funding but also of creating environments where ideas can thrive. As economies undergo rapid technological change, their frameworks help explain how to manage the disruptions of creative destruction while maintaining growth.
Why innovation matters?
The story of Kodak is well-known—once a leader in cameras, it became outdated. Similar changes have happened in music, where cassettes were replaced by CDs and now digital streaming dominates. Businesses that fail to adapt either close or innovate. This is also happening in areas like electric vehicles and renewable energy, where traditional petrol cars may lose relevance. Oil-producing countries are aware of these shifts. At a larger level, AI is affecting nearly all businesses. Jobs are changing, and there is talk of potential job losses. AI has already transformed even basic tasks like online searches, changing how companies operate.
Economic growth today is increasingly driven by innovation. Nobel Prize winners Joel Mokyr, Philippe Aghion, and Peter Howitt have studied this in depth. Innovation has always mattered, as economists like Robert Solow noted—technology helps overcome limits to labor and capital productivity, avoiding diminishing returns.
These Nobel laureates used mathematical models to show how innovation speeds up growth. They also drew from Joseph Schumpeter’s idea of “creative destruction,” where new inventions replace old ones. Over time, markets shift from monopolies to imperfect competition, and innovation drives new growth cycles, as seen in sectors like automobiles, electronics, and engineering. This approach helped economies like China, Japan, and the Asian Tigers grow rapidly. Mokyr, Aghion, and Howitt also stress the state’s role. Governments must encourage innovation through R&D funding and financial systems that support experimentation, even when results are uncertain. Economies that do this, like many in the West and East Asia, have grown faster than those in Africa or Latin America.
In India, innovation is growing. Start-ups and technology adoption have contributed to economic progress. Manufacturing has expanded, foreign investment has brought technology, and funding for innovation is more accessible. Government programs like the start-up support schemes and performance-linked incentives further encourage innovation. Innovation is essential for growth. In a globalised world, borrowing ideas and funds is easier, helping economies and firms grow faster. Companies must keep innovating, as new competitors with fresh ideas can easily overtake those that rely on outdated methods.
Concluding Insights
The 2025 Nobel Prize in Economics recognizes ground-breaking work that sheds light on how humanity escaped centuries of economic stagnation and identifies the factors that could potentially reverse this achievement. This year’s laureates demonstrate that modern economic growth is not a steady or linear process. Instead, it is inherently turbulent, characterised by cycles of continuous creation and destruction. Their research emphasises that the sustainability of growth depends on specific cultural foundations, strong institutions, and proactive governance.
For countries like India, which are navigating complex challenges in technology regulation, trade policy, and the green transition, the laureates’ framework offers critical insights. Understanding the principles of endogenous growth allows policymakers to assess whether their strategies are likely to stimulate innovation or inadvertently hinder it. The key lesson is unambiguous: prosperity is never automatic, openness is essential, and managing the volatility inherent in progress requires sophisticated, evidence-based policy interventions.
At the heart of the laureates’ research is the insight that innovation is fundamentally a socio-institutional process. It is through the interplay of ideas, institutions, and cultural norms that sustained long-term economic growth becomes possible. This finding has immediate relevance in an era dominated by disruptive technologies, which are rapidly rendering old business models and industries obsolete. If states fail to anticipate these shifts and prepare for the adoption of emerging technologies, the consequences could be severe. Relying solely on the continuous infusion of capital to drive growth is increasingly impractical in a world of uncertain trade dynamics and rising geopolitical tensions.
While the laureates’ work highlights the importance of innovation in driving growth, it also prompts reflection on the broader consequences of technological progress. Today, innovation frequently deepens inequality, with its benefits concentrated among a handful of advanced nations and dominant global corporations. Moreover, relentless technological expansion carries substantial ecological costs. The challenge for the future is not only to foster creativity but to ensure that innovation is directed toward inclusivity, ethical responsibility, and environmental sustainability.
The timing of this Nobel recognition is significant. The conditions under which the models of creative destruction and endogenous growth thrive—open markets, global cooperation, and institutional freedoms—have been increasingly stressed. The policies of U.S. President Donald Trump, which politicized science and technology, weaponized trade, and embraced protectionism, illustrate how fragile these conditions can be. While these growth models remain powerful analytical tools for understanding progress within the framework of neoliberal capitalism, they are less effective at explaining the rapid technological advances of state-directed economies, such as China’s. Furthermore, they do not adequately account for how geopolitics, institutional weaknesses, and rising inequality can reshape the very architecture of innovation.
In this context, the Nobel Committee’s decision to honor research grounded in the ideals of liberal markets, scientific freedom, and institutional robustness can be seen as both a recognition and a warning. The message is clear: for liberal democracies to sustain long-term growth, they must uphold institutional freedoms, foster innovation responsibly, and resist the pull of protectionist or insular policies. The work of Mokyr, Aghion, and Howitt reminds us that the engines of progress—ideas, institutions, and innovation—require deliberate cultivation. Without this, even the most advanced economies risk stagnation in an era defined by technological disruption and global uncertainty.
