Nobel Prize in Economics 2025 Awarded for Innovation-Driven Growth: Mokyr, Aghion, and Howitt

The Conversation reports that three economists—Joel Mokyr, Philippe Aghion and Peter Howitt—won the Nobel Prize in Economic Sciences 2025 for work on innovation-driven growth. Mokyr, a Dutch-born economic historian at Northwestern University, received half the prize; the other half was shared by Aghion, (Collège de France and INSEAD) and Howitt (Brown University). Their research emphasises how innovation powers sustained growth and how dynamic economies see old firms die as new ones are born. It also highlights that policy design and worker retraining matter when firms are displaced by new technologies. The piece notes the prize’s continuation of a US-led laureate pattern and discusses broader questions about climate and trade policy. Author: The Conversation.

Innovation as the Engine of Growth

The Nobel Prize in Economic Sciences for 2025 acknowledges three scholars who collectively examined how innovation drives sustainable economic growth. Joel Mokyr, a Northwestern University economic historian, was awarded half of the 11 million Swedish kronor prize for work that links breakthroughs in science and technology to long-run prosperity. The prize underscored the historical view that sustained growth since around 1800 is a relatively unusual period in human history, and that keeping growth on track requires openness to new ideas and collaboration across disciplines. A key illustration cited by Mokyr is the sterilisation of surgical instruments, which only became standard practice after Louis Pasteur and Joseph Lister clarified the role of germs in the 1860s, demonstrating how scientific understanding translates into social and economic advances. "Sustained economic growth would not emerge in a world of engineering without mechanics, iron-making without metallurgy, farming without soil science, mining without geology, water-power without hydraulics, dyemaking without organic chemistry, and medical practice without microbiology and immunology." - Joel Mokyr.

These ideas point to a broader condition for growth: an open society that embraces science and change, allowing new ideas to diffuse and to transform production and living standards. The Nobel committee highlighted that Britain’s Industrial Revolution benefited from such a climate, combining practitioners ready to engage with science with a societal willingness to change. This body of work frames innovation as a driver of sustainable progress rather than a one-off spark, aligning with a long history of scientific and engineering advances feeding economic growth.

Endogenous Growth and Policy Design

The prize also recognises Philippe Aghion and Peter Howitt for developing models of endogenous growth, where economic expansion is generated by activities within the economy rather than external forces. Their work on “creative destruction” shows that innovation creates both winners and losers: new entrants grow while displaced firms must adapt or exit. In the United States, roughly 10 percent of firms enter and 10 percent leave the market each year, illustrating a dynamic churn that policymakers must accommodate. The authors argue that government subsidies and policies must be carefully designed to encourage risk-taking and long-horizon investment, rather than simply propping up short-term advantages. "Governments need to be careful how they design subsidies to encourage innovation." - Philippe Aghion.

Winners, Losers and the Role of Policy

Building on endogenous growth theory, Aghion and Howitt emphasise the political economy of growth policy. Supporting and retraining workers who lose jobs due to displacement can generate political support for growth-enhancing policies and foster a more resilient economy. The trio’s framework suggests that growth is not a zero-sum game; rather, strategic policy can help societies harness creative destruction to raise living standards while mitigating transitional harms. "In the US, about 10% of firms enter and 10% leave the market each year." - Philippe Aghion.

Cautions and the Path Forward

While all three laureates advocate for growth, they also voice concerns about broad consequences. Aghion has warned about the potential drag from tariffs and trade barriers, which can stifle growth and innovation. He also stresses the importance of preventing anti-competitive practices that could choke future innovation. The era of rapid growth raises questions about balancing expansion with environmental constraints, including the need for carbon pricing to align growth with emissions reduction. The prize thus sits at the intersection of economic theory, policy design, and the urgent need to navigate climate and geopolitical risks while sustaining innovation-led progress. The article notes the ongoing dominance of US institutions in prize laureates and highlights questions about diversity within the field, mentioning Rachel Griffith as a prominent alternative voice in related research.