The Nobel Prize in Economic Sciences for 2025 was awarded to Prof. Joel Mokyr of Northwestern University, Prof. Philippe Aghion of Collège de France, and Prof. Peter Howitt of Brown University for "showing how technological progress leads to sustained economic growth."
More specifically, Prof. Mokyr, who is an economic historian, was awarded the prize for having identified the prerequisites for sustained growth through technological progress, while Prof. Aghion and Prof. Howitt, who are researchers in economic growth theory, received the award for developing a theory of sustained growth through creative destruction.
Let us examine the facts in relation to the key concept of sustained growth. The figure shows changes in real GDP per capita in the United Kingdom since the year 1400. The vertical axis uses a logarithmic scale, and the slope on the graph shows the growth rate.
From this figure, the following can be ascertained: per capita GDPs remained essentially unchanged until the middle of the 17th century; growth rate increased in the latter half of the 17th century but decreased after the beginning of the 18th century; and the growth rate started to increase in the early 19th century and the increase has been continuing for around 200 years up to the present. The term “sustained growth” refers to this long-term growth process that began in the early 19th century.
Below, the contributions of the studies by Prof. Mokyr and by Prof. Aghion and Prof. Howitt are explained separately.
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The main focus of Prof. Mokyr's award-winning research is the Industrial Revolution, particularly in the United Kingdom from the end of the 18th to the early 19th century. Classical studies by Karl Marx and Arnold Toynbee (uncle of Arnold Joseph Toynbee, a prominent historian in the 20th century), interpreted the Industrial Revolution as literally a revolutionary transformation of the economic and social system.
However, the quantitative economic history research that progressed in the 1980s to the 1990s, were mostly negative to the revolutionary nature of changes, citing the limited acceleration of economic growth during the Industrial Revolution and the relatively small weight of the industrial sectors affected by technological changes as evidence.
However, as shown in the figure, when the economic growth rate sustainably increases, even small increases can have enormous long-term impact. Prof. Mokyr emphasized that the Industrial Revolution was a crucial turning point toward sustained growth based on technological innovation and explored the causes of this shift.
Based on extensive historical research, he concluded that the shift was a result of an intellectual change which he called the “Industrial Enlightenment,” which occurred in Europe in the 17th to 18th centuries ahead of the Industrial Revolution.
The Industrial Enlightenment refers to the view that it is possible and preferable to achieve economic progress through knowledge. Prof. Mokyr distinguishes between “propositional knowledge” which explains why a certain phenomenon occurs in principle, and “prescriptive knowledge” which shows how to achieve a certain thing irrespective of the reasons for achieving it.
According to Mokyr, the Industrial Enlightenment combined these two types of knowledge, creating feedback, which facilitated cumulative increases in useful knowledge as a whole and its application in various fields, resulting in sustained growth based on a continued chain of technological innovations.
Prof. Mokyr's research not only facilitated historical studies of the Industrial Revolution and technological innovation but also had a significant impact on research in economic growth theory. Sustained growth based on technological innovation is considered a “stylized fact” to be explained by economic growth theory, and much of contemporary growth theory research is partially motivated by Prof. Mokyr's historical research.
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Prof. Aghion and Prof. Howitt contributed to the development of economic growth theory in the following respects. Early economic growth models, such as the Harrod–Domar model or the like, viewed capital accumulations, meaning increases in physical capital, such as machinery equipment and factories, as the main driver of growth. On the contrary, Prof. Robert Solow (awarded the Nobel Prize in Economic Sciences for 1987) introduced labor as an additional production factor, and showed that sustained growth in per capita GDP requires increasing labor productivity through technological progress.
However, in the Solow model, the technological progress rate was assumed as a given, and how to determine it was left unsolved. It was the endogenous growth theory of Prof. Paul Romer that first solved this problem, for which he was awarded the Nobel Prize in Economic Sciences for 2018.
In the Romer model, the driving force for growth is the development of new products by companies. These innovations enhance labor productivity, and further innovation is fostered by the accumulation of experience in developing new products, creating a virtuous cycle. In this framework, the speed of technological progress and the growth rate of labor productivity are determined endogenously.
Prof. Aghion and Prof. Howitt introduced the concept of creative destruction into endogenous growth theory as a major innovation. Creative destruction, emphasized by the economist Prof. Joseph Schumpeter, refers to the process by which new technologies and firms replace old, inefficient ones. Because of this feature, the theory by Prof. Aghion and Prof. Howitt is called the Schumpeterian growth theory.
The Aghion-Howitt model differs significantly from the Romer model in that new products created through companies' R&D are substitutes and not complements for existing products. Companies offering only existing products will lose market share and profits to competitors with new, higher-quality or lower-cost products, sometimes forcing exits from the market. To avoid this, companies must continually strive to develop better products and systems.
From the Aghion-Howitt model, we can derive an implication that under highly competitive market environments, while profit margins decline, competition to produce better products intensifies, forcing technological innovation. Micro-empirical studies on industrial organizations show that the growth rate of productivity is higher for industries with higher firm entry and exit rates. The Aghion-Howitt model provides a theoretical explanation for these findings and implies that higher barriers to entry negatively impact economic dynamism and growth, highlighting the importance of competition-promoting policies.
Furthermore, it is notable that the Aghion-Howitt model has been expanded and applied in various directions by many researchers, including Prof. Aghion and Prof. Howitt themselves, in a manner consistent with micro-level evidence. Examples include theories of firm size distribution and studies on the recent causal relationships between declining labor share and declining productivity growth in industrialized economies.
Many of the implications and applications of the Aghion-Howitt model are discussed in the popular book co-authored by Prof. Aghion and others, titled Le Pouvoir de la destruction créatrice (The Power of Creative Destruction) (2021).
>> Original text in Japanese
* Translated by RIETI.
October 31, 2025 Nihon Keizai Shimbun
