ECONOMICS MADE SIMPLE : 2018 Nobel Prize in economics and its relevance for Tanzania

Each year several prizes are awarded to various individuals and institutions. Among these is the Nobel Prize. Each year various Nobel Prizes are awarded in different fields including in the field of economics.

For 2018 the Nobel Prize in economics was awarded to William D. Nordhaus and Paul M. Romer. In what follows, the prize is discussed with a focus on its relevance for Tanzania.

Nobel Prize

Nobel Prize is a set of annual international awards bestowed in several categories by Swedish and Norwegian institutions in recognition of academic, cultural, or scientific advances. It has its foundation from the will of the Swedish scientist Alfred Nobel which established five Nobel prizes in 1895. The prizes were first awarded in 1901. The prize is regarded as the most prestigious award in the fields of literature, medicine, physics, chemistry, economics and peace globally.

Nobel Prize in Economics

The Nobel Prize in Economics in particular is an award for outstanding contributions to the field of economics. It was established in 1968 by a donation from Sweden’s central bank to the Nobel Foundation to commemorate the bank’s 300th anniversary. It is not one of the prizes that Alfred Nobel established in his will in 1895. However, it is administered and referred to along with the other Nobel Prizes by the Nobel Foundation.

The 2018 Prize

The 2018 Nobel Prize in Economics was announced on 8th October 2018. At the figure of nine million Swedish krona, it was divided equally to two laureates. These are William D. Nordhaus of Yale University in USA for integrating climate change into long-run macroeconomic analysis and Paul M. Romer of NYU Stern School of Business USA for integrating technological innovations into long-run macroeconomic analysis. The duo has designed methods for addressing most basic and pressing questions on how to create long-term sustained and sustainable economic growth. They have broadened the scope of economic analysis by constructing models that explain how the market economy interacts with nature and knowledge. The issues behind their studies leading to the prestigious award are of great relevance and day to day discussion in Tanzania and beyond as partly outlined in what follows.

Technological change

Technology and its changes are very important for economic growth in Tanzania. Romer demonstrates how knowledge can function as a driver of long-term economic growth. Annual economic growth of a few per cent can accumulate for a long period of time, say decades. This can transform people’s lives. Earlier studies in macroeconomics had emphasized technological innovation as the primary driver of economic growth. However, they had not modelled how economic decisions and market conditions determine the creation of new technologies. The 2018 Nobel laureate Romer solved this problem. He demonstrated the way economic forces govern the willingness of firms to produce new ideas and innovations. He explains the way ideas are different from other goods and require specific conditions to thrive in a market. He has stimulated new research on regulations and policies that encourage new ideas and long-term prosperity.

Relevance of technology

Technology in general and its change in particular is very relevant for Tanzania’s economic growth. The role of technology for increasing the quantity and quality of goods and services produced in an economy like that of Tanzania cannot be overemphasized. Relevant too for Tanzania in Romer’s work and therefore the 2018 Nobel Prize is the question of ideas and innovations and the legal, policy and regulatory framework within which these are produced, nurture, developed and contribute to production of goods and services and therefore increase economic growth.

Climate change

Nordhaus’ won the prize due to his work on interactions between society and nature. He worked on the topic since 1970s when scientists had become very worried about global warming due to combustion of fossil fuel. In the mid-1990s, he created a quantitative model that describes the global interplay between the economy and climate. He integrated theories and empirical results from physics, chemistry and economics. His model is used to simulate how the economy and the climate co-evolve. It is used to examine the consequences of climate policy interventions.

Relevance of climate change

The relevance of climate change issues in Tanzania’s economy is very clear. Academic, policy, legal and practical discourses on climate change in Tanzania are not short in supply. These include debates on possible and actual impacts of climate change in Tanzania’s economy, resilience as well as safeguard and mitigation measures. Even the much debated environmental impact assessments for various investments are part of the issues in the greater climate change space.