The purchase of Lieu — traditional indigenous woolen rugs and blankets — in Lassi, a remote village in the Patarasi Rural Municipality of Jumla, Nepal, illustrates how technological innovation diffuses in a rural context. This mountainous and isolated community sustains itself largely through sheep and goat herding, transforming the wool into high-quality heritage woolen products. Our team selected the item as an exemplary souvenir of local craftsmanship of weaving and knitting. Yet, the most striking aspect of the exchange was not the artisanal quality of the products, but the method of payment: the local resident, with only an eighth-grade education, confidently requested a digital transfer instead of cash. This interaction illustrated broader technological innovations underway across Jumla, where digital payments have become as commonplace as in Nepal’s urban centers.
In Jumla, digital transactions are seamlessly integrated into daily life, used for purchasing food, goods, and even paying children’s college tuition in cities such as Kathmandu, Nepalgunj, and Surkhet. Local farmers selling apples, beans, and the renowned Marshi rice (Red and Black) regularly conduct business with urban buyers through mobile payment platforms. The diffusion of digital technologies, supported by reliable electricity and internet connectivity, has expanded economic participation and fostered local prosperity as an energy derivative economy. The emergence of this digitally enabled rural economy exemplifies how technological innovation, once concentrated in cities, now serves as a catalyst for inclusive micro economic growth in previously marginalized geography.
This transformation resonates with the economic theories recognized by the 2025 Nobel Prize in Economic Sciences, awarded to Joel Mokyr (Northwestern University, IN, USA), Philippe Aghion (Collège de France andINSEAD France and LSE, UK), and Peter Howitt (Brown University, RI, USA) for their groundbreaking work on sustained growth through innovation and creative destruction model. Their economic science research demonstrates that technological progress, over the past two centuries, has been the central driver of long-term economic growth, shaping modern prosperity and advancing human welfare. Innovation continually replaces obsolete products and production methods, creating a dynamic cycle that enhances living standards, trade, education, and scientific advancement while broadening human opportunity.
2024 Nobel Prize in Economics shared by 3 recipients
One of the Nobel awardee Professor Mokyr’s contributions emphasize not merely that innovation works, but why and how it succeeds. His historical analyses show that successful innovations build cumulatively, generating self-reinforcing cycles of progress that were often stifled before the Industrial Revolution by institutional rigidity and limited scientific understanding. Professor Mokyr highlights a society’s openness to new ideas as a crucial condition for sustained economic development and growth. Awardee of Aghion and Howitt’s seminal 1992 model of creative destruction formalized this process (Illustrated in Figure 1), describing how new technologies and superior products displace older, less efficient ones. While creative destruction fuels productivity and accessibility as seen in fintech and digital payments, it also renders outdated firms obsolete, producing both economic dynamism and social dislocation.
The 2025 Nobel Committee, chaired by John Hassler, underscored that sustained economic growth cannot be assumed; it must be continually supported by institutions that preserve the positive dynamics of creative destruction while mitigating its exclusionary effects. This insight mirrors global patterns in innovation, particularly in the evolution of the startup ecosystem. Although the concept of startup dates to the early twentieth century, the modern model took shape in the 1970s and accelerated during the 1990s dot-com boom. The rise of companies such as Yahoo, Amazon, and Google transformed the digital economy, and by the 2000s, Silicon Valley, California of the USA had emerged as the global epicenter of innovations. The proliferation of smartphones, cloud computing, data mining and social media, coupled with accelerators and crowdfunding, democratized entrepreneurship and expanded innovation across continents from the United States to China, India, Thailand, and Brazil, etc.; unfortunately, Nepal missed it.
Nepal, too, demonstrated early promise during the computing era. The establishment of the National Computer Center (NCC) during the Panchayat period was a pioneering achievement in South Asia, attracting regional attention before India had developed comparable infrastructure. The NCC trained professionals who later founded private firms that even exported computing products to the U.S. in the 1990s. However, this trajectory was disrupted by political instability and the politicization of institutions. Access to resources and opportunities became determined by party affiliation rather than merit, stifling Nepal’s nascent innovation ecosystem just as its neighbors were making rapid technological advances.
Today, Nepal’s startup innovations and mechanisms landscape remains fraught with systemic obstacles. Despite a generation of talented entrepreneurs working in computing, artificial intelligence, and digital application development, inadequate policy support and bureaucratic inefficiency have constrained innovations and mechanisms. The Fifteenth Plan (FY 2019/20–2023/24) articulated an ambitious vision to promote start-up entrepreneurship through skills development, technical assistance, and access to finance, calling on all tiers of government to foster innovation. Yet its implementation was undermined by weak political will, rent-seeking behavior of the Government system, and administrative inertia. Policy benefits were frequently captured by politically connected individuals, while genuine innovators encountered structural barriers and a pervasive misunderstanding of what constitutes a startup ecosystem.
The 2023 National Startup Enterprise Policy, though well-intentioned, has largely perpetuated bureaucratic rigidity. Rather than enabling dynamic innovations, it reflects a conventional, supply-driven approach detached from the realities of Nepal’s entrepreneurial community. Similarly, the High-Level Commission for Economic Improvement Suggestions (2081), chaired by Rameshwor Prasad Khanal, offered rhetorical ambition but little actionable strategy. Its superficial engagement with emerging work modalities such as remote employment and digital nomadism demonstrated a limited grasp of contemporary economic transformations. Despite his administrative experience, Khanal’s leadership has not yet translated into a forward-looking policy environment conducive to innovation-led growth.Mr. Khanal now serves as Nepal’s Finance Minister, heading the apex institution responsible for economic policy formulation and implementation. It remains to be seen whether his leadership will effectively catalyze innovation-driven development and foster sustained economic growth.
Nepal possesses immense potential for innovation-driven development, grounded in its rich natural resources, hungry youth innovators and cultural heritage. The woolen textiles of Jumla, for example, rival globally renowned fabrics such as Scottish Tweed or Italian Woolrich. Yet these international benchmarks succeed not merely because of tradition, but because of their integration with research, development, design, and technological innovation. Nepal’s local industries remain largely disconnected from such enabling mechanisms. Similarly, the tourism sector could benefit from innovation that links Himalayan landscapes, Buddhist heritage, mountain agriculture, and wellness tourism fields with considerable potential for high-value, sustainable growth.
Without a coherent and pragmatic strategy to empower its young innovators, Nepal risks squandering both its demographic dividend and its rich cultural capital. The aspirations of Generation Z for an inclusive, innovation-led economy cannot be realized under orthodox leadership and abstract policymaking. What Nepal urgently requires is a forward-looking framework that translates ambition into action: one that operationalizes the principles recognized by the 2025 Nobel Prize in Economic Sciences, particularly the theory of sustained growth through creative destruction and the identification of prerequisites for long-term progress through technological advancement.
