2025 Economics Nobel Prize

Context

Joel Mokyr, Philippe Aghion and Peter Howitt were the recipients of the 2025 Economics Nobel prize for their revolutionary research on economics and innovation.

Key Highlights

• The study questioned the reasons why the growth in the economy was not sustained until the past two hundred years despite the advancement in technology over the ages.
• It claimed that before the Industrial Revolution, technological knowledge was mainly prescriptive, i.e., people understood how to get things to work but not why they worked.
• This was changed in the 16th -17th centuries of the Scientific Revolution to propositional knowledge, i.e., the connection between empirical knowledge and scientific thinking.
• This combination of science and technology formed the basis of useful knowledge which provided systematic innovation.

Economics of Creative Destruction

• Their 1992 model has provided a mathematical formulation of the process of creative destruction, through which new technologies are created in place of old technologies, into macroeconomic growth over the long term.
• In this framework:
  • Companies spend on research and development in order to produce a better product or process.
  • Effective innovators make short-lived profits.
  • In the long run, the new innovators come to replace them, a process of creative destruction.
  • It is through this process that aggregate GDP is increasing at a steady rate, despite the rise and fall of individual firms.
• They have a general-equilibrium model in which they connect all markets (goods, labor, and capital) to illustrate the relationship between micro-level innovations to macroeconomic stability.
• They further showed that the social spillovers of R&D are positive, hence investing in research and education by the public is justified.

Implications to India and Other Developing Economies

• Invest in Science and Human Capital: Increase the funds allocated to R&D, develop innovation centers, and enhance the transfer of technology between research centers and industries.
• Balance Adoption and Innovation: Although India can be assisted by the imports of technology and FDI, long-term growth requires internal innovation potential with the assistance of start-up ecosystems and ease of regulations.
• Competition: avoid monopoly of markets in such industries as telecommunication and technology to provide a fair market environment where new players can enter their markets.
• Strong Labor Market Policies: Adopt flexicurity i.e. safeguard workers by training and social insurance in place of job protection.
• Advance Diversified Innovation: Motivate technology strategy with national priorities such as renewable energy, digital participation, and sustainable production.

Source: The Indian Express

Prelims PYQ

(Q) Nobel Prize winning scientist James D. Watson is known for his work in which area? (2008)

(a) Metallurgy
(b) Meteorology
(c) Environmental protection
(d) Genetics

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