"Previous macroeconomic research had emphasized technological innovation as the primary driver of economic growth, but had not modeled how economic decisions and market conditions determine the creation of new technologies". His work is fundamental to endogenous growth theory, which holds that investments in human capital, innovation and knowledge are significant contributors to economic growth.
The work of both economists does "not deliver conclusive answers", the Nobel committee said, adding that nevertheless "their findings have brought us considerably closer to answering the question of how we can achieve sustained and sustainable global economic growth".
Nordhaus and Romer have designed methods that address long-term sustainable growth in the global economy and the welfare of the world's population. Many Republicans in Congress have also expressed skepticism about whether or how much human beings are contributing to global warming and whether the US government ought to take steps to address it.
"His model is now widespread and is used to examine the consequences of climate policy interventions, for example carbon taxes", the statement said.
Nordhaus completed his PhD dissertation at MIT under the supervision of Robert M. Solow, himself the 1987 victor of the Nobel Prize in economic sciences. Also, Nordhaus was the first person to create the model that shows that the economy and the climate are interlinked.
Nordhaus has been a prominent advocate of the use of a uniformly applied carbon tax as the best way to put a true cost on the use of burning fossil fuels and so reducing greenhouse gas emissions.
Coming to Nordhaus' research, it consists of a quantitative model that demonstrates that how economic activity interacts with basic chemistry and physics to produce climate change.
The two economists will share the 9 million Swedish kronor ($1.01 million, €860,000) prize.
That award was postponed by a year for the first time in 70 years over a rape scandal that came to light as part of the #MeToo movement.
Officially known as the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the economics prize is traditionally the final award of the Nobels to be announced each year.
It went to Yazidi women's campaigner Nadia Murad and Congolese doctor Denis Mukwege for their work in fighting sexual violence in conflicts around the world.