How this year’s Nobel winners changed the thinking on economic growth
What makes some countries rich and others poor? Is there any action a country can take to improve living standards for its citizens? Economists have wondered about this for centuries. If the answer to the second question is yes, then the impact on people’s lives could be staggering.
This year’s Sveriges Riksbank Prize in Economic Sciences (commonly known as the Nobel prize for economics) has gone to three researchers who have provided answers to these questions: Philippe Aghion, Peter Howitt and Joel Mokyr.
For most of human history, economic stagnation has been the norm – modern economic growth is very recent from a historical point of view. This year’s winners have been honoured for their contributions towards explaining how to achieve sustained economic growth.
At the beginning of the 1980s, theories around economic growth were largely dominated by the works of American economist Robert Solow. An important conclusion emerged: in the long-run, per-capita income growth is determined by technological progress.
Solow’s framework, however, did not explain how technology accumulates over time, nor the role of institutions and policies in boosting it. As such, the theory can neither explain why countries grow differently for sustained periods nor what kind of policies could help a country improve its long-run growth performance.
It’s possible to argue that technological innovation comes from the work of scientists, who are motivated less by money than the rest of........
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