Understanding Innovation-Driven Growth
UPSC Relevance
Prelims: Indian Economy (Concepts of Economic Growth & Development, R&D, Skilling); Current Events of National and International Importance (Nobel Prizes).
Mains:
General Studies Paper 3 (Economy): Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Investment models; Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth. The theories discussed are central to modern growth economics.
Key Highlights from the News
The 2025 Nobel Prize in Economic Sciences (Sveriges Riksbank Prize in Economic Sciences) was awarded to three economists: Joel Mokyr, Philippe Aghion, and Peter Howitt.
The award was given for explaining how innovations lead to innovation-driven economic growth. They investigated the reasons behind the continuous economic growth the world has achieved over the last 200 years.
Joel Mokyr's Contribution:
Sustainable growth requires "useful knowledge".
This has two parts: propositional knowledge which explains "why?", and prescriptive knowledge which explains "how?". The Industrial Revolution succeeded when these two types of knowledge combined.
Aghion and Howitt's Contribution:
They provided a mathematical model for the concept of "Creative Destruction".
This is a process where new innovations destroy old technologies and industries, but overall grow the economy.
Their model helps analyze the optimal volume of R&D (research and development) a country needs.
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