Philippe Aghion and Peter Howitt: The Engine of Endogenous Growth - October 2025

When Philippe Aghion and Peter Howitt published their landmark paper “A Model of Growth Through Creative Destruction” in 1992, they did more than revive Joseph Schumpeter’s vision of capitalism’s restless dynamism — they gave it mathematical life. Their model showed that innovation is not a mysterious external force, but an outcome of human ambition, competition, and institutional design. In doing so, they founded what is now known as endogenous growth theory, transforming our understanding of how economies renew themselves from within.

The 2025 Nobel Prize in Economic Sciences, awarded to Aghion and Howitt alongside Joel Mokyr, recognizes this synthesis of theory and history: if Mokyr explained why societies became capable of sustained innovation, Aghion and Howitt explained how that innovation unfolds — through the perpetual cycle of creation and destruction that drives capitalism forward.

At the heart of their framework lies a simple but profound mechanism: entrepreneurs innovate to outpace rivals, but each breakthrough renders previous technologies obsolete. Growth, therefore, is both creative and destructive — a process that rewards ingenuity while displacing the old. The result is progress that is dynamic rather than smooth, turbulent but self-sustaining.

This insight reshaped not only economic theory but also policy and practice. Aghion and Howitt demonstrated that innovation thrives at a “Goldilocks” level of competition — intense enough to push firms to escape their rivals, but not so fierce that profits disappear. Too little competition breeds complacency; too much, paralysis. The best environment for discovery, they showed, is one that rewards risk-taking, tolerates failure, and protects entry.

Their work also revealed that innovation policy and social policy are complements, not opposites. Societies that pair openness to change with safety nets for those displaced by it sustain faster and more inclusive growth. The welfare state, in this view, is not a brake on capitalism but a stabilizer of its most productive forces — making citizens more willing to embrace the disruptions that fuel progress.

Over the decades, the Aghion–Howitt model has evolved into a powerful toolkit for understanding modern challenges: the digital revolution, the green transition, rising inequality, and slowing productivity. Their framework guides policymakers from the OECD to the European Commission, helping shape strategies that link innovation, competition, and resilience in an age of technological transformation.

Ultimately, Aghion and Howitt redefined economic growth as a living process of renewal — driven by ideas, disciplined by markets, and sustained by democratic openness. Their work reminds us that progress is not automatic: it must be continuously earned through policies and institutions that keep the forces of creative destruction constructive.

📘 Download the full report to explore how Aghion and Howitt’s theory of creative destruction explains the dynamics of innovation — and why maintaining openness, competition, and inclusion remains essential for future prosperity.