The BBVA Foundation Frontiers of Knowledge Award in Economics, Finance and Management goes, in this twelfth edition, to Philippe Aghion and Peter Howitt for their fundamental contributions to the study of innovation, technical change, and competition policy.
In their joint writings they have revived, developed in the framework of modern economic theory, and validated empirically Schumpeter’s idea that innovation is a process of creative destruction. The seminal contribution in this literature is “A Model of Growth through Creative Destruction” published in Econometrica in 1992. This article provides a new theoretical framework which is the basis for important positive and normative new insights. It identifies policies that can increase or decrease innovation and growth, and the conditions under which innovation and growth can be either suboptimally too high or too low.
The neo-Schumpeterian framework has proven a powerful tool for a variety of applications, some of them developed by Aghion and Howitt themselves. For instance, in “Growth and Unemployment” (Review of Economic Studies 1994) they link innovation to the process of job creation and job destruction in a model of the labor market with search frictions. And in “Competition and Innovation: An Inverted-U Relationship” (Quarterly Journal of Economics 2005, with Nick Bloom, Richard Blundell and Rachel Griffith), they study the relationship between product market competition and innovation, which they find to be hump shaped, with both very high and very low competition deterring innovation.
Aghion and Howitt’s work has also been highly influential for a number of ongoing areas of research, among them, the relationship between innovation and environmental degradation, financial development and growth, and the effect of institutions on economic development.