Three researchers have been awarded this year’s Nobel memorial prize in economics for their fundamental work explaining how technological innovation and societal openness combine to fuel long-term economic growth. The Royal Swedish Academy of Sciences honored Joel Mokyr of Northwestern University, alongside Philippe Aghion of the Collège de France and London School of Economics, and Peter Howitt of Brown University for developing a comprehensive understanding of the forces that have allowed humanity to escape centuries of economic stagnation.
The 11 million Swedish kronor prize was split to recognize two complementary bodies of work that form a complete theory of innovation-driven growth. Mokyr received one half of the prize for his historical research that identified the essential societal and institutional conditions necessary for technological progress to flourish. Aghion and Howitt shared the other half for developing a formal economic model that explains how the turbulent process of “creative destruction,” where new inventions displace older technologies, serves as the primary engine of sustained prosperity. Together, their contributions have reshaped how economists and policymakers understand the intricate relationship between innovation, competition, and economic destiny.
A Theory in Two Halves
The Nobel committee’s decision to divide the prize highlights two distinct but deeply connected approaches to understanding economic dynamism. Mokyr’s work provides the historical and cultural context, explaining the conditions that make sustained growth possible, while Aghion and Howitt’s research offers the mathematical framework describing the mechanism that drives it forward. This division reflects a holistic view of economic progress, recognizing that both the foundational environment for new ideas and the competitive process that implements them are critical. The laureates’ work collectively moves beyond older economic growth models, which often treated technological change as an external, unexplained force. Instead, they position it as an endogenous feature of the economy—one that can be cultivated or stifled by societal choices and policies.
The Foundations of Progress
Joel Mokyr, a Dutch-born economic historian, earned his share of the prize for identifying the key prerequisites that allowed societies, particularly in Europe, to break free from historical cycles of stagnation and initiate sustained growth. His research pinpoints the essential interplay between what he terms “propositional knowledge” (the scientific understanding of natural principles) and “prescriptive knowledge” (the practical know-how of artisans and engineers). Mokyr argues that the Industrial Revolution was born from the tightening of this link; as science began to explain why certain techniques worked, it created a powerful feedback loop that accelerated the pace of invention.
Beyond the fusion of science and craft, Mokyr identified two other crucial conditions. First, a society requires a sufficient supply of skilled artisans, entrepreneurs, and engineers who are capable of transforming groundbreaking ideas into commercially viable products and processes. Second, and perhaps most critically, a society must maintain institutional openness to new ideas and a tolerance for the disruption that inevitably follows technological change. He points to the Enlightenment era and the establishment of institutions like the British Parliament as examples of how cultural and political shifts reduced resistance to transformative innovations, creating fertile ground for the Industrial Revolution to take root.
The Engine of Creative Destruction
Philippe Aghion and Peter Howitt were recognized for their joint work formalizing the concept of “creative destruction” as the core mechanism of modern economic growth. While the term was famously coined by economist Joseph Schumpeter in 1942, Aghion and Howitt constructed the first rigorous mathematical model of this process in a seminal 1992 article. Their framework details a continuous and turbulent cycle where entrepreneurs are motivated by the prospect of monopoly profits to create new innovations. These new products, technologies, or business models outperform and ultimately replace older ones, destroying the market position of incumbents in the process.
Their model shows that this seemingly chaotic process is the primary source of the long-term productivity gains that raise living standards. It captures the essential tension of capitalism: the same competitive force that drives progress also creates winners and losers, rendering established firms and skills obsolete. Their analysis provides a powerful tool for understanding why economies that protect incumbents from competition may innovate less and grow slower, while those that embrace disruption tend to be more dynamic. The theory explains phenomena ranging from the replacement of horse-drawn transport by steam locomotives to the impact of e-commerce on traditional retail.
Implications for Modern Policy
The work of the three laureates provides an essential framework for governments navigating the complexities of the 21st-century economy. Their theories offer vital insights for crafting policies related to technology regulation, international trade, education, and environmental transition. By treating innovation as an outcome of specific economic and institutional conditions, their research allows policymakers to more accurately evaluate whether a given policy is likely to foster or hinder a nation’s innovation cycle. This is particularly relevant as countries worldwide seek to reverse years of lackluster growth and sluggish productivity gains that have persisted since the 2008 financial crisis.
The Nobel committee underscored this relevance, with chair John Hassler warning that “economic growth cannot be taken for granted.” He stressed the importance of upholding the mechanisms that drive creative destruction to avoid falling back into economic stagnation. The laureates’ research suggests that long-term prosperity depends not on preserving specific jobs or industries, but on creating an environment where new ideas can emerge, be tested by the market, and, if successful, displace less efficient predecessors. This implies a focus on robust education systems, investment in research and development, and competitive markets that reward novel solutions.
The Laureates and the Prize
The 2025 Nobel Memorial Prize in Economic Sciences, formally known as the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, was awarded to three distinguished academics. Joel Mokyr, 79, is a Dutch-born American-Israeli professor at Northwestern University. Philippe Aghion, 69, is a French economist affiliated with the Collège de France, INSEAD business school, and the London School of Economics. Peter Howitt, 79, is a Canadian-born economist at Brown University.
Mokyr will receive half of the 11 million Swedish kronor prize, which is equivalent to nearly $1.2 million. Aghion and Howitt will share the other half. Along with the prize money, the winners receive an 18-karat gold medal and a diploma, which are presented at a ceremony on December 10, the anniversary of Alfred Nobel’s death. The economics prize was established by Sweden’s central bank in 1968 to commemorate its 300th anniversary and has been awarded 57 times to 99 laureates.