Sveriges Riksbank Prize in Economic Sciences 2025: Explaining Innovation-Driven Economic Growth

The Sveriges Riksbank Prize in Economic Sciences has been awarded to three professors for demonstrating how innovation drives economic growth, which in turn delivers greater human welfare while consigning outdated technologies to history.

Joel Mokyr, 79, won half of the 11 million Swedish kronor (US$1.2 million) prize in October 2025 for articulating the essential conditions for continuous technological advancement. The other half was awarded jointly to Philippe Aghion, 69, and Peter Howitt, 79, for setting out the role that creative destruction plays in sustaining growth.

The prize is significant because steady economic growth of 1% to 2% per year has become so familiar that many now take it for granted, especially in developed nations. Using different methods, the Laureates looked to understand why the world has seen sustained economic growth over the last two centuries that meant a doubling of income over a person’s working life – for the first time in history.

How Does Economic Growth Come About?

As an economic historian, Professor Mokyr used historical research methods to explore a crucial puzzle: what initially triggered economic growth. For the vast majority of human history, economies remained stagnant despite the presence of inventions and technological advances.

While economists commonly assume that innovation and technology drive economic expansion, the real question issue that Mokyr investigated was what had changed to make these innovations actually translate into sustained economic growth.

He observed that while innovations occurred during periods such as the 500 years between the 14^th and 18^th centuries, income showed virtually no growth on the whole despite experiencing one-off rises and falls. According to Mokyr, these innovations failed to spark the ongoing stream of refinements and novel uses that would now be expected to naturally emerge from significant breakthroughs in technology and science.

He showed that sustained economic progress required an ongoing supply of “useful” knowledge. According to Mokyr, this comprized two components: “propositional” knowledge, which consists of observations about patterns that explain the underlying reasons things function as they do; and “prescriptive” knowledge, which includes hands-on guidance that specify how to make something work. The Industrial Revolution supported the scientific advances that made the innovations successful.

Yet this consistent, long-term expansion we are now used to is remarkable given the underlying turbulence beneath the surface. In the United States for example, a tenth of all businesses exit the marketplace each year while the same proportion emerge as new entrants.

Transformation Creating Growth

Given this constant upheaval, one puzzle is how such a turbulent cycle of business creation and destruction can consistently produce steady economic growth patterns. Professors Aghion and Howitt together made a mathematical model using modern data to explain how this disruptive process – with firms entering and leaving the market – actually generated economic growth.

They showed how this transformative process was key to creating sustained growth. A firm with an innovative product or superior production technique can overtake competitors to gain market leadership. But this achievement promptly encourages other businesses to make further advancements and claim the top spot for themselves – and so on.

At a press conference following the prize announcement, Aghion said artificial intelligence was the latest innovation with the potential to accelerate such creative destruction. Like other technological revolutions, AI would make companies much more productive and thus see increases in demand for their products, which would in turn increase employment, he said.

But, on the other hand, it would create a fear that the innovation would lead to job loss as was seen regarding the steam engine, the electricity revolution and the rise of robots. “We need good institutions on education, labour market policy to harness this productivity potential and to make sure we minimize the negative effect of the new industrial revolution like we did with previous ones,” he said. “I think the prosperity and happiness is the combined result of technology and institutions and policies.”

Announcing the prize, John Hassler, chair of the committee for the prize in economic sciences, said the Laureates’ work showed that economic growth could not be taken for granted. “We must uphold the mechanisms that underlie creative destruction, so that we do not fall back into stagnation.”

Reactions From the Scientific Community

The award has received a warm welcome from the profession on social media. Writing on Bluesky, Monika Schnitzer, economics professor at Ludwig Maximilian University of Munich, said the three Laureates’ work showed that innovation and technological change were essential for sustaining long-term growth – “insights we should take very seriously, now more than ever.”

Joseph Stiglitz, the 2002 Nobel Laurate, said on the same platform that their “great work” has been “deservedly recognized”. On X, Martin Guzman, a former economics minister of Argentina and PhD student of Professor Howitt, congratulated his former supervisor, describing him as a “spectacular” economist.

With typical modesty, Professor Mokyr told the Associated Press on the day of the award that when his students had asked him about the possibility he would win the Nobel, he replied that he was “more likely to be elected pope than to win the Nobel Prize in economics – and I am Jewish, by the way.”

Joel Mokyr

Joel Mokyr is the Robert H. Strotz Professor of Arts and Sciences at Northwestern University, USA. He was born in Leiden, Netherlands, in 1946 and was awarded his PhD in economics from Yale University in 1974. He is also Sackler Professorial Fellow at the Eitan Berglas School of Economics at Tel Aviv University, Israel.

Philippe Aghion

Philippe Aghion is the Chair of Economics of Institutions, Innovation and Growth at the Collège de France and the Kurt Björklund Chaired Professor in Innovation and Growth at INSEAD, France. He was born 1956 in Paris, France, and was awarded his PhD by Harvard University, Cambridge, MA, USA, in 1987. He has been an editor of the Annual Review of Economics since 2018.

Peter Howitt

Peter Howitt is the Lyn Crost Professor of Social Sciences Emeritus at Brown University, Rhode Island, USA. He was born in 1946 in Guelph, Ontario, Canada, and earned his PhD from Northwestern University, Evanston, Illinois, USA, in 1973.