Joel Mokyr, Philippe Aghion and Peter Howitt are awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel in 2025, “for having explained innovation-driven economic growth”

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One half of the award goes to Joel Mokyr “for having identified the prerequisites for sustained growth through technological progress” and the other half jointly to Philippe Aghion and Peter Howitt “for the theory of sustained growth through creative destruction.” 

In a scientific background paper about the award, the Committee for the Prize in Economic Sciences in Memory of Alfred Nobel writes, among others, the following:

“Joel Mokyr, an economic historian, studied how growth became sustained as a result of a set of key prerequisites that were not jointly present prior to the Industrial Revolution, but have been since then.
Of central importance is how science interacts with technology, i.e., economic production in practice and that society welcomes technological change. One of his main study objects, quite naturally, was the Industrial Revolution, since it defined the transition between the era of economic stagnation and the era of economic growth.

Philippe Aghion and Peter Howitt instead were inspired by the sustained economic growth of modern times and how disruptive this process is underneath the aggregate. They developed a theory of growth through “creative destruction”, describing the process of innovation and “business stealing” and how the long-run growth rate of an economy is determined as a result. The theory contains fundamental building blocks of how new technology surpasses old, where some firms win at the expense of other firms, in an economy characterized by constant churning.

The starting point of this year’s laureates contributions is the view that innovation and technological
change are the key drivers of sustained economic growth. This point was forcefully made by Robert Solow (1986 economics laureate), whose growth accounting method (Solow, 1957) suggests that growth is not primarily driven by physical or human capital accumulation. The question of what drives technological change itself was not formally addressed until the early 1990s, when Paul Romer (2017 economics laureate) developed theories around knowledge accumulation and emphasized key attributes like the non-rival nature of ideas. These studies, however, did not address how economic growth could emerge in the first place as a sustained phenomenon, nor did they examine or empirically evaluate the exact mechanisms propelling growth further and further. Even taking for granted that innovations and technological change are the key driver of economic growth, innovations predate the period of sustained economic growth by millennia. This year’s laureates both explain how innovations feed into sustained economic growth, and how a regime emerged in which new products and processes are continuously introduced in the market-place despite the conflicting interests they create.

Mokyr’s novel answer centers around how innovation accelerates when scientific breakthroughs and
practical knowledge reinforce each other. In particular, his studies link a number of key observations.
First, philosophical and theoretical advancements had been recorded dating back thousands of years.
Second, the development of applied technology—new tools, products, and methods of production that
are central ingredients into how production occurs—had been pushed forward for ages. Third, each of
these phenomena had always occurred in relatively short bursts and, throughout time, ground to a halt. Taken together, this produced a pattern of economic growth that in most of human history resembled long periods of stagnation or very slow growth, punctuated by sudden outbursts of short-lived economic dynamism. All of this changed with the Industrial Revolution, when the world saw sustained growth rates for the first time in history. In a string of focused, but crucially related, contributions, Mokyr (1990a, 2002, 2009) arrived at a synthesis that puts the interplay between science and applied technology at the heart of the articulation. The Enlightenment, in particular, was a major burst to science, but it did not mechanically generate applications that led to economic growth; for that, the practitioners were key. At the same time, Mokyr also documents how new innovations challenged old ways and met resistance from established interest groups wanting to thwart technological change. Therefore, intellectual tolerance for new ways of thinking and openness to ideas was crucial for removing major roadblocks to technological progress. Practitioners, ready to engage with science, along with a societal climate embracing change, were, according to Mokyr, key reasons why the Industrial Revolution started in Britain. Mokyr’s narrative is constructed from a wide variety of historical sources from all of human history and both qualitative and quantitative work. The narrative has also been successfully tested with econometric studies by Mokyr himself as well as others.

Rather than looking into the distant past, Aghion and Howitt were motivated by observing modern-day
sustained, innovation-led growth in advanced economies. Aghion and Howitt set out to understand, via theoretical formalization, how entrepreneurs innovate: how they create new ideas and introduce better products and processes in the marketplace, and how their actions are shaped by the regulatory environment. In other words, being guided by how innovations come about in practice in today’s society, Aghion and Howitt put entrepreneurs and their decisions at center stage and analyzed the process of creative destruction. The idea is that an innovation leads to business stealing: the innovation is carried out in one firm, or by one individual, but partially destroys the rents of others. They constructed a mathematical framework designed to study how individual decisions and conflicting interests at the microeconomic firm level can lead to steady output growth at the aggregate level. The theory is empirically persuasive—it matches a range of relevant microeconomic and macroeconomic facts—and generated an avalanche of follow-up studies linking competition and firm dynamics to growth. The basic model proposed by Aghion and Howitt (1992), and the literature that followed, described innovations not as complementary to pre-existing activities, as in Romer’s work, but as another polar case whereby new goods are perfect substitutes with old ones, and in fact simply better than existing goods. This perspective introduces the elements of creative destruction and conflicting interests. Aghion and Howitt’s approach fundamentally relies on the heterogeneity and competing relations among firms, allowing us to test the theories of aggregate growth, and quantify their mechanisms, by looking at microeconomic, firm-level data. It also allows us to evaluate
counter-factual policy experiments explicitly, e.g., changes in patent protection, competition policies or R&D subsidies. Their model, with its countless extensions, has become the workhorse model for analyzing positive and normative questions regarding innovation-led growth.

Mokyr’s broad perspective and Aghion and Howitt’s analytical precision provide us with tools that are
crucial in today’s world. Sustained technological development has allowed human conditions to steadily improve for more than 200 years. Two centuries, however, is just a small fraction of human history and the continuation of this trend is not to be taken for granted. Impediments to the open exchange of ideas and fading support for science could pose future threats to economic growth. Another challenge is how to regulate dominant tech or pharmaceutical companies without harming the technological progress they create. At the same time, there are also opportunities: new technologies such as artificial intelligence could grease the positive feedback loop between science and applied technology and may—in the right regulatory and societal environment—even lead to faster progress. Together, the contributions of this year’s laureates have provided us with tools and offer important insights into how to address threats to progress and make the best out of future opportunities.”

Link to the Announcement of the Royal Swedish Academy of Sciences

Link to the Scientific Background Paper of the Committee for the Prize in Economic Sciences for 2025