The 2018 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Paul M. Romer, a professor of economics at NYU Stern School of Business and previous Chief Economist of the World Bank. He split the award with a professor of economics from Yale University, William D. Nordhaus. Romer was awarded the prize “for integrating technological innovations into long-run macroeconomic analysis,” according to the Nobel Prize press release.

The two Nobel Laureates were selected for their continued research on how to create sustainable long-term economic growth. Romer has created various models that show the relationship between the market economy and nature’s finite resources. His work shows how innovations — which are born through technological change and spurred by market competition — are able to promote sustainable economic growth. In essence, Romer holds that the economy is propelled through the ingenuity of its markets’ most elemental mechanism: its citizens.

Romer explains how ideas and innovations thrive under certain market conditions through his “endogenous growth theory,” explained in his 1990 paper Endogenous Technological Change. The central theory states that “the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.”

The theory takes into account the capacity for knowledge to lead global growth, whereas previous scholarship focused uniquely on more quantifiable factors such as labor and capital.

“To understand how persistent growth … is possible, it helps to step back and ask where growth comes from,” explained Romer in a 2015 blog post on economic growth. “At the most basic level, an economy grows … whenever people take resources and rearrange them in a way that makes them more valuable.”

Romer's research explores how the growth that emerges as a result of rearranging and reallocating our resources, doesn’t have to be constrained within the market economy. In fact, his recent work on the endogenous growth theory also takes humanitarian development consideration and provides new strategies on how to use domestic education, policies on research and development and patent protection to incentivize individuals to invest in new ideas — not capital — that could solve global justice issues.

Romer has employed this principle to advocate for various issues facing the world at the moment, one of which is climate change. During a voice call at the Nobel Prize announcement on Oct. 8, Romer reassured those present of the ability of society to prevent climate change through continued innovation.

“It’s entirely possible for humans to produce less carbon. [There are] some trade-offs, but once we start to try and reduce carbon emissions, we’ll be surprised that it wasn’t as hard as we anticipated,” said Romer on the subject.

“I read ... about the concern people had when we addressed the problem of the ozone hole caused by chlorofluorocarbons. There were many people saying this would be enormously expensive and difficult and then once we actually set about reducing emissions … it was a non-event.”