Knowledge economy source:

The knowledge economy (or the knowledge-based economy) is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to a rapid pace of advancement in technical and scientific innovation as well as accelerated obsolescence.[1] The key element of value is the greater dependence on human capital and intellectual property for the source of the innovative ideas, information and practices.[2] Organisations are required to capitalise this "knowledge" into their production to stimulate and deepen the business development process. There is less reliance on physical input and natural resources. A knowledge-based economy relies on the crucial role of intangible assets within the organisations' settings in facilitating modern economic growth.[3]

A knowledge economy features a highly skilled workforce within the microeconomic and macroeconomic environment; institutions and industries create jobs that demand specialized skills in order to meet the global market needs.[4][5] Knowledge is viewed as an additional input to labour and capital.[6] In principle, one's primary individual capital is knowledge together with the ability to perform so as to create economic value.[5]

In a knowledge economy, highly skilled jobs require excellent technical skills and relational skills[7] such as problem-solving, the flexibility to interface with multiple discipline areas as well as the ability to adapt to changes as opposed to moving or crafting physical objects in conventional manufacturing-based economies.[8][9] A knowledge economy stands in contrast to an agrarian economy, in which the primary economic activity is subsistence farming for which the main requirement is manual labour[10] or an industrialized economy that features mass production in which most of the works are relatively unskilled.[11]

A knowledge economy emphasizes the importance of skills in a service economy, the third phase of economic development, also called a post-industrial economy. It is related to an information economy, which emphasizes the importance of information as non-physical capital, and a digital economy, which emphasizes the degree to which information technology facilitates trade. For companies, intellectual property such as trade secrets, copyrighted material, and patented processes become more valuable in a knowledge economy than in earlier eras.[12][13][14][15][16]

The global economy transition to a knowledge economy[17][18][1][19][20][21][22] is also referred to as the Information Age, bringing about an information society.[23] The term knowledge economy was made famous by Peter Drucker as the title of Chapter 12 in his book The Age of Discontinuity (1969), that Drucker attributed to economist Fritz Machlup, originating in the idea of scientific management developed by Frederick Winslow Taylor.[24]


A key concept of the knowledge economy is that knowledge and education (often referred to as "human capital") can be treated as one of the following two:

  • A business product, as educational and innovative intellectual products and services can be exported for a high value return.
  • A productive asset.

It can be defined as:

[P]roduction and services based on knowledge-intensive activities that contribute to an accelerated pace of technical and scientific advance, as well as rapid obsolescence. The key component of a knowledge economy is a greater reliance on intellectual capabilities than on physical inputs or natural resources.[25]

The initial foundation for the knowledge economy was introduced in 1966 in the book The Effective Executive by Peter Drucker. In this book, Drucker described the difference between the manual worker (page 2) and the knowledge worker. The manual worker, according to him, works with their hands and produces goods or services. In contrast, a knowledge worker (page 3) works with their head, not hands, and produces ideas, knowledge, and information.

The key problem in the formalization and modeling of knowledge economy is a vague definition of knowledge, which is a rather relative concept. For example, it is not proper to consider information society as interchangeable with knowledge society. Information is usually not equivalent to knowledge. Their use depends on individual and group preferences (see the cognitive IPK model) which are "economy-dependent".[26]


The knowledge economy is also seen as the latest stage of development in global economic restructuring. Thus far, the developed world has transitioned from an agricultural economy (pre-Industrial Age, largely the agrarian sector) to industrial economy (with the Industrial Age, largely the manufacturing sector) to post-industrial/mass production economy (mid-1900s, largely the service sector) to knowledge economy (late 1900s–2000s, largely the technology/human capital sector). This latest stage has been marked by the upheavals (sometimes referred to as the knowledge revolution) in technological innovations and the globally competitive need for innovation with new products and processes that develop from the research community (i.e., R&D factors, universities, labs, educational institutes). Thomas A. Stewart[27] points out that just as the industrial revolution did not end agriculture because people have to eat, the knowledge revolution is unlikely to end industry because people still need physical products.

In the knowledge economy, the specialized labor force is characterized as computer literate and well-trained in handling data, developing algorithms and simulated models, and innovating on processes and systems. Harvard Business School Professor, Michael Porter, asserts that today's economy is far more dynamic and that comparative advantage is less relevant than competitive advantage which rests on "making more productive use of inputs, which requires continual innovation".[28] Consequently, the technical STEM careers including computer scientists, engineers, chemists, biologists, mathematicians, and scientific inventors will see continuous demand in years to come. Additionally, well-situated clusters, which Michael Porter argues is vital in global economies, connect locally with linked industries, manufacturers, and other entities that are related by skills, technologies, and other common inputs. Hence, knowledge is the catalyst and connective tissue in modern economies. Ruggles and Holtshouse[29] argue the change is characterized by a dispersion of power and by managers who lead by empowering knowledge workers to contribute and make decisions.

With Earth's depleting natural resources, the need for green infrastructure, a logistics industry forced into just-in-time deliveries, growing global demand, regulatory policy governed by performance results, and a host of other items high priority is put on knowledge; and research becomes paramount. Knowledge provides the technical expertise, problem-solving, performance measurement and evaluation, and data management needed for the trans-boundary, interdisciplinary global scale of today's competition.[30]

Worldwide examples of the knowledge economy taking place among many others include: Silicon Valley in California; aerospace and automotive engineering in Munich, Germany; biotechnology in Hyderabad, India; electronics and digital media in Seoul, South Korea; petrochemical and energy industry in Brazil. Many other cities and regions try to follow a knowledge-driven development paradigm and increase their knowledge base by investing in higher education and research institutions in order to attract high skilled labor and better position themselves in the global competition.[31] Yet, despite digital tools democratizing access to knowledge, research shows that knowledge economy activities remain as concentrated as ever in traditional economic cores.[32]

It has been suggested[by whom?] that the next evolutionary step after knowledge economy is the network economy, where the relatively localized knowledge is now being shared among and across various networks for the benefit of the network members as a whole, to gain economic of scale in a wider, more open scale.[citation needed]


The technology requirements for a national innovation system as described by the World Bank Institute must be able to disseminate a unified process by which a working method may converge scientific and technology solutions, and organizational solutions.[33] According to the World Bank Institute's definition, such innovation would further enable the World Bank Institute's vision outlined in their Millennium Development Goals.

Challenges for developing countries[edit]

The United Nations Commission on Science and Technology for Development report (UNCSTD, 1997) concluded that for developing countries to successfully integrate ICTs and sustainable development in order to participate in the knowledge economy they need to intervene collectively and strategically.[34] Such collective intervention suggested would be in the development of effective national ICT policies that support the new regulatory framework, promote the selected knowledge production, and use of ICTs and harness their organizational changes to be in line with the Millennium Development Goals. The report further suggests that developing countries to develop the required ICT strategies and policies for institutions and regulations taking into account the need to be responsive to the issues of convergence.

See also[edit]


  1. ^ a b Powell, Walter W.; Snellman, Kaisa (2004). "The Knowledge Economy". Annual Review of Sociology. 30 (1): 199–220. doi:10.1146/annurev.soc.29.010202.100037.
  2. ^ Hayes, Adam (6 Feb 2020). "Knowledge economy". Investopedia. Retrieved 16 Oct 2020.
  3. ^ World, Bank (2007). Building Knowledge Economies: Advanced Strategies for Development. 1818 H Street, NW,Washington, DC 20433: World Bank Publications. pp. 4–12. ISBN 9780821369579.CS1 maint: location (link)
  4. ^ Pologeorgis, Nicolas A. (25 June 2019). "Employability, the Labor Force, and the Economy". investopedia. Retrieved 16 Oct 2020.
  5. ^ a b Kwon, Dae-Bong (27–30 Oct 2009). Human capital and its measurement (PDF). The 3rd OECD World Forum on "Statistics, Knowledge and Policy": Charting Progress, Building Visions, Improving Life. OECD. pp. 1–15.CS1 maint: date format (link)
  6. ^ Commisson, European (2005). Conference on knowledge economy - Challenges for Measurement. Luxembourg: Office for Official Publications of the European Communities: Eurostat. pp. 9–13. ISBN 92-79-02207-5.
  7. ^ Dusi, Paola; Messetti, Giuseppina; Steinbach, Marilyn (2014). "Skills, Attitudes, Relational Abilities & Reflexivity: Competences for a Multicultural Society". Procedia - Social and Behavioral Sciences. 112: 538–547. doi:10.1016/j.sbspro.2014.01.1200. ISSN 1877-0428.
  8. ^ Harpan, Ioana; Draghici, Anca (20 Mar 2014). "Debate on the Multilevel Model of the Human Capital Measurement". Procedia - Social and Behavioural Sciences. 124: 170–177. doi:10.1016/j.sbspro.2014.02.474.
  9. ^ Kofler, Ingrid; Innerhofer, Elisa; Marcher, Anja; Gruber, Mirjam; Pechlaner, Harald (2020). The Future of High-Skilled Workers: Regional Problems and Global Challenges. Cham, Switzerland: Springer Verlag. pp. 29–41. ISBN 9783030428709.
  10. ^ Johnson, D. Gale (16 Jan 2019). "Agricultural economics". Encycloaedia Britannica, Inc. Retrieved 16 Oct 2020.
  11. ^ Wokutch, Richard E. (12 Feb 2014). "Newly industrialized country". Encycloaedia Britannica. Retrieved 16 Oct 2020.
  12. ^ Houghton, John; Sheehan, Peter (2000). A Primer on the Knowledge Economy (PDF). Melbourne City: Centre for Strategic Economic Studies, Victoria University of Technology.
  13. ^ Stehr, Nico; Mast, Jason L. (2012). "Knowledge Economy". Handbook on the Knowledge Economy, Volume Two. doi:10.4337/9781781005132.00009. ISBN 9781781005132.
  14. ^ Foundations of the knowledge economy: innovation, learning, and clusters. Westeren, Knut Ingar. Cheltenham, UK: Edward Elgar. 2012. ISBN 978-0-85793-771-1. OCLC 758983832.CS1 maint: others (link)
  15. ^ Unger, Roberto Mangabeira (2019-03-19). The knowledge economy. London. ISBN 978-1-78873-497-4. OCLC 1050279840.
  16. ^ "OECD Work on Knowledge and the Knowledge Economy", Advancing Knowledge and The Knowledge Economy, The MIT Press, 2006, ISBN 978-0-262-25645-2, retrieved 2020-02-10
  17. ^ Smith, Keith (2002). "What is the 'Knowledge Economy'? Knowledge Intensity and Distributed Knowledge Bases" (PDF). Discussion Papers from United Nations University, Institute for New Technologies, No. 6. Archived from the original (PDF) on 2014-12-28. Retrieved 2013-09-05.
  18. ^ Radwan, Ismail; Pellegrini, Giulia (2010). "Singapore's Transition to the Knowledge Economy: From Efficiency to Innovation" (PDF). Knowledge, Productivity, and Innovation in Nigeria: Creating a New Economy. Washington, DC: The World Bank. pp. 145–161. ISBN 978-0-8213-8196-0.
  19. ^ Rothboeck, Sandra (2000). "Human Resources and Work Organization in the Knowledge Economy – The Case of the Indian Software Industry" (PDF). Cite journal requires |journal= (help)
  20. ^ Blomström, Magnus; Kokko, Ari; Sjöholm, Fredrik (2002). "Growth & Innovation Policies For a Knowledge Economy. Experiences From Finland, Sweden & Singapore" (PDF). Working Paper 156. Archived from the original (PDF) on 2014-12-22.
  21. ^ Djeflat, Pr. Abdelkader (2009). "Building Knowledge Economies for job creation, increased competitiveness, and balanced development" (PDF). Worldbank Draft.
  22. ^ Antràs, Pol; Garicano, Luis; Rossi-Hansberg, Esteban (2006). "Offshoring in a Knowledge Economy" (PDF). Quarterly Journal of Economics. 121 (1): 31–77. doi:10.1093/qje/121.1.31.
  23. ^ Dutta, Soumitra, ed. (2012). "The Global Innovation Index 2012: Stronger Innovation Linkages for Global Growth" (PDF). INSEAD. Archived from the original (PDF) on 2013-04-18. Cite journal requires |journal= (help)
  24. ^ Drucker, Peter (1969). The Age of Discontinuity; Guidelines to Our Changing Society. New York: Harper and Row.
  25. ^ Powell, Walter W.; Snellman, Kaisa (2004). "The Knowledge Economy" (PDF). Annual Review of Sociology. 30: 199–220. doi:10.1146/annurev.soc.29.010202.100037. Retrieved 24 March 2014.
  26. ^ Flew, Terry (2008). New Media: An Introduction (3rd ed.). New York: Oxford University Press. ISBN 978-0-19-555149-5.
  27. ^ Stewart, Thomas A. (1997). Intellectual Capital. Bantam Doubleday Dell, New York. p. 17. ISBN 978-0385483810.
  28. ^ Porter, Michael E. (1998). "Clusters and the New Economics of Competition" (PDF). Harvard Business Review. December (6): 77–90. PMID 10187248.[permanent dead link]
  29. ^ Ruggles, Rudy and David Holtshouse, ed. (1999). The Knowledge Advantage. Capstone Business Books, Dover, NH. p. 49. ISBN 978-1841120676.
  30. ^ The Brookings Institution (2008). MetroPolicy: Shaping A New Federal Partnership for a Metropolitan Nation Report.
  31. ^ Koukoufikis, Giorgos. "Building a knowledge-driven city The case of the Gran Sasso Science Institute in L 'Aquila, Italy". Retrieved 3 March 2016.
  32. ^ Ojanperä, Sanna; Graham, Mark; Straumann, Ralph; Sabbata, Stefano De; Zook, Matthew (2017-03-08). "Engagement in the Knowledge Economy: Regional Patterns of Content Creation with a Focus on Sub-Saharan Africa". Information Technologies & International Development. 13: 19. ISSN 1544-7529.
  33. ^ Tho, Q.T.; Hui, S.C.; Fong, A.C.M.; Tru Hoang Cao (2006). "Automatic Fuzzy Ontology Generation for Semantic Web". IEEE Transactions on Knowledge and Data Engineering. 18 (6): 842–856. doi:10.1109/TKDE.2006.87.CS1 maint: uses authors parameter (link)
  34. ^ UNCSTD (1997). United Nations Commission on Science and Technology for Development. Report of the Working Group on ICTs for Development prepared for the 3rd Session. 12 May, Geneva, Switzerland.CS1 maint: location (link)


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