{"id":69028,"date":"2025-10-15T11:32:51","date_gmt":"2025-10-15T06:02:51","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=69028"},"modified":"2025-10-15T11:32:51","modified_gmt":"2025-10-15T06:02:51","slug":"nobel-prize-2025-how-innovation-drives-economic-growth","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/nobel-prize-2025-how-innovation-drives-economic-growth\/","title":{"rendered":"Nobel Prize 2025: How Innovation Drives Economic Growth"},"content":{"rendered":"<h2><b>Nobel Prize 2025 Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The 2025 Nobel Prize in Economics has been awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their pioneering work in explaining innovation-driven economic growth.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The Royal Swedish Academy of Sciences announced that half the prize will go to Mokyr, with the remaining half shared by Aghion and Howitt.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Their research highlights how technological progress and innovation act as key drivers of long-term prosperity.<\/span><\/li>\n<\/ul>\n<h2><b>2025 Economics Nobel Laureates: Pioneers of Innovation-Led Growth<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Joel Mokyr<\/b><span style=\"font-weight: 400;\"> (Netherlands), Professor at Northwestern University, was recognised \u201c<\/span><b>for identifying the prerequisites for sustained growth through technological progress<\/b><span style=\"font-weight: 400;\">.\u201d<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Philippe Aghion (France), Professor at Coll\u00e8ge de France, INSEAD, and LSE, and Peter Howitt (Canada, 1946), Professor at Brown University, jointly received the other half of the prize \u201c<\/span><b>for the theory of sustained growth through creative destruction<\/b><span style=\"font-weight: 400;\">.\u201d<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Their combined work has deepened global understanding of how innovation, knowledge, and competition fuel long-term economic prosperity.<\/span><\/li>\n<\/ul>\n<h2><b>Joel Mokyr\u2019s Theory of \u201cUseful Knowledge\u201d<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Joel Mokyr\u2019s research seeks to explain <\/span><b>why global economic growth has accelerated and sustained over the past 200 years<\/b><span style=\"font-weight: 400;\">, breaking centuries of stagnation.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">His work, grounded in economic history, identifies how the systematic creation and application of knowledge triggered the Industrial Revolution and continues to sustain progress today.<\/span><\/li>\n<\/ul>\n<h3><b>The Concept of \u201cUseful Knowledge\u201d<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Mokyr proposed that sustained growth depends on a continuous flow of <\/span><b>\u201cuseful knowledge\u201d<\/b><span style=\"font-weight: 400;\">, which he divided into two interconnected parts:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Propositional Knowledge:<\/b><span style=\"font-weight: 400;\"> Understanding <\/span><i><span style=\"font-weight: 400;\">why<\/span><\/i><span style=\"font-weight: 400;\"> things work \u2014 derived from scientific theories and natural observations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><b>Prescriptive Knowledge:<\/b><span style=\"font-weight: 400;\"> Knowing <\/span><i><span style=\"font-weight: 400;\">how<\/span><\/i><span style=\"font-weight: 400;\"> things work \u2014 practical, reproducible instructions or \u201crecipes\u201d that enable implementation, such as technical drawings or process manuals.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">He argued that before the <\/span><b>Industrial Revolution<\/b><span style=\"font-weight: 400;\">, innovators possessed ample <\/span><b>propositional knowledge<\/b><span style=\"font-weight: 400;\"> but lacked strong <\/span><b>prescriptive knowledge<\/b><span style=\"font-weight: 400;\">, limiting their ability to apply scientific ideas to real-world production.<\/span><\/li>\n<\/ul>\n<h3><b>The Turning Point: Scientific Revolution and Reproducibility<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to Mokyr, the transformation began in the 16th and 17th centuries, when scientists started to use precise measurements, controlled experiments, and reproducible results.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This new scientific discipline created a feedback loop between theoretical understanding and practical application \u2014 a dynamic exchange that laid the foundation for continuous technological improvement.<\/span><\/li>\n<\/ul>\n<h3><b>From Theory to Application: Examples of \u201cUseful Knowledge\u201d<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Mokyr illustrated his theory with examples such as:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The <\/span><b>steam engine\u2019s evolution<\/b><span style=\"font-weight: 400;\">, enabled by deeper insights into <\/span><b>atmospheric pressure and vacuums<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The <\/span><b>advancement of steel production<\/b><span style=\"font-weight: 400;\">, made possible by understanding how <\/span><b>oxygen reduces carbon content in molten iron<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These innovations exemplify how tighter feedback between scientific discovery and practical engineering created <\/span><b>self-sustaining progress<\/b><span style=\"font-weight: 400;\">, driving industrialisation and modern economic growth.<\/span><\/li>\n<\/ul>\n<h3><b>Policy Lessons from Joel Mokyr\u2019s Work: Skills and Openness as Pillars of Sustained Growth<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Joel Mokyr\u2019s research offers two key policy insights for achieving long-term, innovation-led economic growth.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">First, new ideas succeed only when supported by <\/span><b>abundant practical, technical, and commercial skills<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">The policy takeaway is that governments must invest heavily in skilling and vocational training to transform innovation into sustained prosperity.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Second, Mokyr emphasised that <\/span><b>societies must remain open to change<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Innovation inevitably creates winners and losers, and resistance from entrenched interests can stifle progress.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Therefore, policymakers must foster a culture that embraces technological disruption and mitigates its social costs through inclusive, adaptive institutions.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>Aghion and Howitt\u2019s Theory of Creative Destruction: Modelling Innovation and Growth<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Economists <\/span><b>Philippe Aghion<\/b><span style=\"font-weight: 400;\"> and <\/span><b>Peter Howitt<\/b><span style=\"font-weight: 400;\"> built a <\/span><b>mathematical model of \u201ccreative destruction\u201d<\/b><span style=\"font-weight: 400;\">, explaining how innovation drives economic growth by continuously replacing old technologies and firms with new ones.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Their model assumes that <\/span><b>firms invest in research and development (R&amp;D)<\/b><span style=\"font-weight: 400;\"> to create new, patentable products, giving them temporary monopoly power.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">However, innovation is <\/span><b>cumulative and competitive<\/b><span style=\"font-weight: 400;\"> \u2014 a new firm can develop a better product that displaces the incumbent, shifting profits and market dominance to itself.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This constant cycle of <\/span><b>innovation and replacement<\/b><span style=\"font-weight: 400;\"> fuels <\/span><b>long-term economic growth<\/b><span style=\"font-weight: 400;\">, but also brings instability and structural change.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Aghion and Howitt\u2019s framework allows economists to study the <\/span><b>optimal level of R&amp;D investment<\/b><span style=\"font-weight: 400;\"> in a <\/span><b>free-market economy<\/b><span style=\"font-weight: 400;\">, balancing innovation incentives against the disruptions caused by technological progress.<\/span><\/li>\n<\/ul>\n<h2><b>Balancing Innovation and Efficiency: How Much Should Governments Subsidise R&amp;D<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">According to Philippe Aghion and Peter Howitt\u2019s model of creative destruction, government support for research and development (R&amp;D) requires a careful balance between encouraging innovation and avoiding inefficiency.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">On one hand, when new innovations replace old technologies, society continues to benefit from the older inventions even after their creators stop earning profits.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">This social spillover effect justifies public subsidies for R&amp;D, ensuring firms remain motivated to innovate despite diminishing private returns.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">On the other hand, when an innovation offers only incremental improvements but yields disproportionately high monopoly profits for the innovating firm, excessive R&amp;D spending can become socially inefficient.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">In such cases, subsidies may overstimulate research investment with limited societal gains.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Thus, the <\/span><b>optimal level of R&amp;D support depends on the structure of each economy<\/b><span style=\"font-weight: 400;\">, <\/span><b>the pace of technological change<\/b><span style=\"font-weight: 400;\">, and the <\/span><b>extent of knowledge spillovers<\/b><span style=\"font-weight: 400;\"> \u2014 a balance policymakers must strike to achieve sustained, innovation-driven growth.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/www.thehindu.com\/business\/Economy\/economics-nobel-prize-2025-all-you-need-to-know-about-the-winners\/article70158364.ece\" target=\"_blank\" rel=\"nofollow noopener\">TH<\/a> | <a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/nobel-prize-economic-sciences-winners-10304713\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The 2025 Nobel Prize in Economics honours Mokyr, Aghion, and Howitt for explaining how innovation, knowledge, and creative destruction drive sustained economic growth.<\/p>\n","protected":false},"author":18,"featured_media":69040,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,3256,22,59],"class_list":{"0":"post-69028","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-mains-articles","9":"tag-nobel-prize-2025","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/69028","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=69028"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/69028\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/69040"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=69028"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=69028"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=69028"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}