Relevance (UPSC): GS-III – Indian Economy (Growth, Innovation & Policy)

The Nobel Prize in Economics 2025 honours Joel Mokyr, Philippe Aghion and Peter Howitt for explaining how ideas power long-run growth.

• Mokyr (economic history): using archives and technology records, he showed how useful knowledge spread—from laboratories and guilds to factories—turning inventions into everyday productivity.
  
• Aghion & Howitt (endogenous growth): their Schumpeterian model shows firms climb the ladder through innovation and creative destruction: new products and processes replace old ones. Firm-level choices—research, entry, exit, financing, management—aggregate to national growth.
  

Policy meaning for India

• Protect competition while ensuring time-bound patent protection and anti-trust vigilance.
  
• Back young, innovative firms with research and development credits, risk capital and easier entry–exit.
  
• Invest in human capital—universities, technical training, and open science—so knowledge diffuses widely.
  
• Improve firm dynamism: faster approvals, bankruptcy resolution, and digital public goods that lower transaction costs.
  

Key terms: Endogenous growth (innovation generated inside the economy), creative destruction (new firms and ideas replace old ones), firm dynamism (entry, scaling, exit shaping productivity).

Exam hook

UPSC Prelims question:

Q. The Aghion–Howitt framework primarily emphasises which drivers of long-run growth?
(a) Natural resources and trade only
(b) Government consumption and taxation alone
(c) Innovation, competition, and firm entry–exit dynamics
(d) Fixed capital deepening without technology change
Answer: (c)

One-line wrap: The prize reminds policymakers: nurture ideas, protect competition, and let energetic firms rise—growth will follow.