Innovation, Creative Destruction, and Sustained Economic Growth - A Critical Insight into the Economic Thoughts of the 2025 Nobel Laureates

Abstract

Economic growth is a complex phenomenon. The historical analysis of demographic and economic changes reveals that all economies have passed through four stages as they progressed from stagnation to rapid growth. The first Industrial Revolution, triggered by discoveries, innovations, and technological progress, helped economies break the Malthusian trap, and Western economies entered the phase of economic take-off. By the end of the 19th century, Western economies entered an era of sustained economic growth, and less-developed countries followed in the 20th century. As the pace of technological progress has increased, the contribution of human capital - education, skills, and health–has been acknowledged and emphasized. Economists have sought to analyze the dynamics of economic growth using growth models. These models usually focus on empirical evidence to trace the path of growth but often do not give due attention to the historical factors that triggered the transition and endogenous factors -knowledge and innovation. The Nobel Prize in Economics for 2025 was jointly awarded to Phillepe Aghion, Peter Howitt, and Joel Mokyr for their economic thoughts on innovation-driven growth. Although distinct, their ideas are complementary, as they argue that the dynamic interaction between knowledge, innovation, technological advancement, and institutions leads to sustained economic growth. This research traces their flow of thought on the role of exogenous and endogenous factors in economic development. This paper presents a conceptual review and attempts to critically interpret and synthesize the intellectual contributions of Nobel laureates. This study uses a qualitative and analytical research design based on a comprehensive review of the literature. The study’s theoretical foundation draws on the original scholarly contributions of Nobel laureates and literature on the Nobel Prize’s scientific background and Nobel lectures to examine their ideas. Additional literature, primarily secondary sources, is used to show the link between their perspectives and to provide a comprehensive understanding of innovation-driven creative destruction. The paper concludes by identifying future research avenues, specifically the role of artificial intelligence, digital transformation, and green technologies in innovation-driven economic growth, which is dominant worldwide today.