Nobel Prize in Economics awarded for integrating innovation, climate with growth

The 2018 Nobel Prize in Economics was awarded by the Royal Swedish Academy of Sciences jointly to William D. Nordhaus and Paul M. Romer for their work on integrating innovation and climate with economic growth.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2018 was granted with one half to William D. Nordhaus ‘for integrating climate change into long-run macroeconomic analysis’ and the other half to Paul M. Romer ‘for integrating technological innovations into long-run macroeconomic analysis’.

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William D. Nordhaus and Paul M. Romer have designed methods for addressing some of the most basic and pressing questions about the foundation for long-term sustained and sustainable economic growth.

This year’s Laureates William Nordhaus and Paul Romer have notably widened the horizons for the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge.

Previous macroeconomic research had emphasised technological innovation as the primary driver of economic growth, Previous research in this field had not thrown light on how economic decisions and market conditions determine the creation of new technologies. Paul Romer laid a solution to this by demonstrating how economic forces govern the willingness of forms to produce new ideas and innovations. Published in 1990, his findings laid the foundation of what is now called Endogenous Growth theory, which explains how ideas are different to other goods and require specific conditions to thrive in a market.

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Nordhaus’ findings deal with interactions between society and nature. He started working on this topic in the 1970s, as scientists had become increasingly worried about the combustion of fossil fuel resulting in a warmer climate. He became the first person to create an integrated assessment model, i.e. a quantitative model that describes the global interplay between the economy and the climate. It is used to examine the consequences of climate policy interventions, for example carbon taxes.

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The Laureates’ research has brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth.

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