Beyond the lab: Nobel blueprint for developing economies

• The 2025 Nobel Prize in Economics, awarded to Joel Mokyr, Philippe Aghion, and Peter Howitt for their work on “innovation-driven economic growth,” may at first seem to celebrate abstract theory. Yet their insights offer something far more urgent and practical: a roadmap for transforming the economic futures of developing nations. Their research reframes the question of prosperity—not as a matter of resource endowment or foreign investment—but as a function of how societies generate, absorb, and apply knowledge.

For decades, development strategies in the Global South have relied on a familiar triad: attract foreign capital, export raw materials, and hope that wealth trickles down. This model, while occasionally producing short-term gains, has proven structurally inadequate. It leaves nations vulnerable to commodity cycles, external shocks, and technological dependency. The work of this year’s laureates exposes the flaws in that approach and points toward a more resilient, self-sustaining alternative—one rooted in endogenous innovation and institutional dynamism.

Joel Mokyr, the economic historian among the trio, reinterprets the Industrial Revolution not as a series of mechanical breakthroughs but as a cultural and epistemic shift. He distinguishes between “useful knowledge” and “propositional knowledge”: between knowing that something works and understanding why it works. This transition, he argues, enabled sustained innovation by embedding scientific reasoning into economic life. For developing nations today, that insight is transformative. Many possess vibrant informal economies and entrepreneurial energy, yet without robust systems of scientific education, research infrastructure, and intellectual openness, innovation remains incremental and fragile.

Mokyr’s work urges policymakers to look beyond physical infrastructure and invest in cognitive infrastructure. Roads and ports matter, but so do universities, technical institutes, and digital repositories. A country that prioritises knowledge creation—through open inquiry, interdisciplinary research, and public access to scientific tools—builds the foundation for locally tailored solutions. Whether it’s drought-resistant crops in sub-Saharan Africa or low-cost diagnostics in South Asia, the next breakthrough is more likely to emerge from a regional lab than a multinational boardroom. Mokyr’s historical lens reframes development as cultivating epistemic capacity, not merely absorbing external technologies.

While Mokyr explains the origins of innovation, Philippe Aghion and Peter Howitt illuminate its dynamics. Their theory of “creative destruction” shows how economies grow by replacing outdated firms and technologies with more efficient ones. Innovation, in their model, is not additive — it is disruptive. It thrives where competition is encouraged, incumbents are challenged, and new entrants can scale rapidly.

This has profound implications for developing economies, often constrained by entrenched interests and regulatory inertia. Protective policies frequently shield inefficient firms that enjoy political patronage, creating what Aghion and Howitt term “zombie firms” — entities surviving not by merit but through insulation from market forces. These firms stifle competition, deter investment, and block the rise of more agile players. The laureates’ work offers a theoretical foundation for dismantling such barriers and designing institutions that reward experimentation and renewal.

In practice, this means rethinking industrial policy. It requires regulatory frameworks that lower entry barriers, financial systems that extend credit to first-time entrepreneurs, and public procurement models that favour innovation over incumbency. It also demands embracing technological leapfrogging. Just as many African nations bypassed landlines for mobile networks, they can now skip fossil-fuel grids for renewables, legacy banking for digital finance, and traditional diagnostics for AI-enabled health systems. Creative destruction, in this context, is not a threat — it is a developmental strategy.

The synergy between Mokyr’s and Aghion–Howitt’s contributions is striking. Mokyr’s emphasis on knowledge ecosystems supplies the raw material for innovation, while Aghion and Howitt’s framework ensures that this material is continuously tested, refined, and scaled. Together, they outline a virtuous cycle: educated citizens generate ideas; competitive markets validate and disseminate them; and institutional feedback loops ensure that learning is cumulative and inclusive.

Importantly, the benefits of innovation-driven growth extend beyond macroeconomic indicators. They manifest in tangible improvements in human welfare—better jobs, cleaner energy, more effective healthcare, and resilient food systems. They empower communities to solve problems with context-sensitive tools, reducing dependency and enhancing dignity. In this sense, the laureates’ work is not merely about growth — it is about agency.

The message from Stockholm is one of radical optimism. It suggests that the wealth of nations in the 21st century will be determined less by geography or colonial legacy, and more by their capacity to learn, adapt, and innovate. For the developing world, this is a call to action. It invites leaders to move beyond extractive models toward systems that cultivate human potential. It challenges institutions to become enablers of creativity rather than custodians of the status quo.

By embracing the lessons of Mokyr, Aghion, and Howitt, developing nations can chart a new course — one where growth is not a trickle from elite enclaves but a flood of ingenuity from classrooms, labs, and startups. This is not a theoretical proposition; it is a practical agenda for building societies that are not only wealthier but also more resilient, inclusive, and just.

Thakur is Professor and Dean at Vinayaka Mission’s School of Economics and Public Policy, Chennai