Innovation Economics
Encyclopedia
Innovation economics or economics of innovation is a growing economic doctrine that reformulates conventional economics theory so that knowledge
, technology
, entrepreneurship
, and innovation
are positioned at the center of the model rather than seen as independent forces that are largely unaffected by policy. Innovation economics is based on two fundamental tenets: that the central goal of economic policy should be to spur higher productivity
through greater innovation
, and that markets relying on input
resource
s and price
signals alone will not always be as effective in spurring higher productivity
, and thereby economic growth
.
This is in contrast to the two other conventional economic doctrines, neoclassical economics
and Keynesian economics
.
is the patron saint of classical economics
and Keynes of Keynesian economics
, it is Joseph Schumpeter
who is the patron saint of innovation economics, especially with his classic 1942 book Capitalism, Socialism and Democracy
. Writing around the same time as Keynes, Schumpeter had a decidedly different take on the economy and on economics. For Schumpeter it was evolving institutions, entrepreneur
s, and technological change that were at the heart of economic growth
. He argued that creative destruction is crucial in capitalism.
But it is only within the last 15 years that a theory and narrative of economic growth focused on innovation that was grounded in Schumpeter’s ideas has emerged. Innovation economics attempted to answer the fundamental problem in the puzzle of total factor productivity
growth. Continual growth of output
could no longer be explained only in increase of input
s used in the production process as understood in industrialization. Hence, innovation economics focused on a theory of economic creativity that would impact the theory of the firm and organization decision-making. Hovering between heterodox economics
that emphasized the fragility of conventional assumptions and orthodox economics
that ignored the fragility of such assumptions, innovation economics aims for joint didactics between the two. As such, it enlarges the Schumpeterian analyses of new technological system by incorporating new ideas of information and communication technology in the global economy.
Indeed, a new theory and narrative of economic growth focused on innovation has emerged in the last decade. Innovation economics emerges on the wage of other schools of thoughts in economics, including new institutional economics
, new growth theory, endogenous growth theory
, evolutionary economics
, neo-Schumpeterian economics– provides an economic framework that explains and helps support growth in today’s knowledge economy
.
Leading theorists of innovation economics include both formal economists, as well as management theorists, technology policy experts, and others. These include Paul Romer
, Elhanan Helpman
, W. Brian Arthur
, Robert Axtell, Eric Beinhocker
, Richard R. Nelson, Richard Lipsey
, Michael Porter
, Christopher Freeman
.
accumulation, as claimed by neoclassicalism asserts, but innovative capacity spurred by appropriable knowledge and technological externalities. Economics growth in innovation economics is the end-product of knowledge (tacit vs. codified); regimes and policies allowing for entrepreneurship
and innovation (i.e., R&D expenditures, permits, license
s); technological spillover
s and externalities
between collaborative firms; and systems of innovation that create innovative environments (i.e., cluster
s, agglomeration
s, metropolitan area
s).
In 1970, famed economist Milton Friedman
said in the New York Times that a business’s sole purpose is to generate profits for their shareholders and companies that pursued other missions would be less competitive, resulting in fewer benefits to owners, employees, and society. Yet data over the past several decades shows that while profits matter, good firms supply far more, particularly in bringing innovation to the market. This fosters economic growth
, employment
gains, and other society-wide benefits. Business school
professor David Ahlstrom asserts: “the main goal of business is to develop new and innovative goods and services that generate economic growth while delivering benefits to society.”
In contrast to neoclassical economics, innovation economics offer differing perspectives on main focus, reasons for economic growth, and the assumptions of context between economic actors:
Despite the differences in economic thought, both perspectives are based on the same core premise: the foundation of all economic growth
is the optimization
of the utilization
of factors and the measure of success is how well the factor
utilization is optimized. Whatever the factors, it nonetheless leads to the same situation of special endowment
s, varying relative price
s, and production processes. So while, the two differ in theoretical concepts
, innovation economics can find fertile ground in mainstream economic
s, rather than remain in diametric contention.
firms in Germany
was due to the R&D subsidies to joint projects, network
partners, and close cognitive distance of collaborative partners within a cluster
. These factors increased patent
performance in the biotech industry. Additionally, innovation capacity explains much of the GDP growth in India
and China
between 1981-2004 but especially in the 1990s. Their development of a National Innovation System through heavy investment of R&D expenditures and personnel, patents, and high-tech/service exports strengthened their innovation capacity. By linking the science
sector with the business
sector, establishing incentives for innovative activities, and balancing the import of technology
and indigenous R&D effort, both countries experienced rapid economic growth
in recent decades. Also, the Council of Foreign Relations asserted that since the end of the 1970s, the U.S. has gained a disproportionate share of the world’s wealth through their aggressive pursuit of technological change
, demonstrating that technological innovation is a central catalyst of steady economic performance. Concisely, evidence shows that innovation contributes to steady economic growth
and rise in per capita income
.
However, some empirical studies investigating the innovation-performance-link lead to rather mixed results and indicate that the relationship be more subtle and complex than commonly assumed. In particular, the relationship between innovativeness and performance seems to differ in intensity and significance across empirical contexts, environmental circumstances, and conceptual dimensions.
s are, but a deliberate, concerted effort of market
s, institution
s, policymakers
, and effect use of geographic space
. In global economic restructuring
, location has a become key element in establishing competitive advantage as regions focus on their unique assets to spur innovation (i.e., information technology
in Silicon Valley
, CA; digital media
in Seoul
, South Korea). As Harvard economist Michael Porter
asserts clusters
are the incubators of innovation in their cohesive, agglomeration of similar industries, technologies, skilled laborers, research institutions, and other necessary components of innovative environments. No longer is comparative advantage
relevant which focused on input-costs. Now, competitive advantage, or the productive use of inputs which requires continual innovation, is necessary. Even more, thriving metropolitan economies
that carry multiple clusters (i.e., Tokyo
, Chicago
, London
) essentially fuel national economies through their pools of human capital
, innovation
, quality place
s, and infrastructure
. Cities become “innovative spaces” and “cradles of creativity” as drivers of innovation. They become essential to the system of innovation through the supply side: ready, available, abundant capital
and labor; good infrastructure
for productive activities, and diversified production structures that spawn synergies and hence innovation. In addition they grow due to the demand side: diverse population of varying occupations, ideas, skills; high and differentiated level of consumer demand; and constant recreation of urban order especially infrastructure of street
s, water systems, energy
, and transportation.
Knowledge
Knowledge is a familiarity with someone or something unknown, which can include information, facts, descriptions, or skills acquired through experience or education. It can refer to the theoretical or practical understanding of a subject...
, technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
, entrepreneurship
Entrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response...
, and innovation
Innovation
Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
are positioned at the center of the model rather than seen as independent forces that are largely unaffected by policy. Innovation economics is based on two fundamental tenets: that the central goal of economic policy should be to spur higher productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
through greater innovation
Innovation
Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
, and that markets relying on input
Input
Input is the term denoting either an entrance or changes which are inserted into a system and which activate/modify a process. It is an abstract concept, used in the modeling, system design and system exploitation...
resource
Resource
A resource is a source or supply from which benefit is produced, typically of limited availability.Resource may also refer to:* Resource , substances or objects required by a biological organism for normal maintenance, growth, and reproduction...
s and price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
signals alone will not always be as effective in spurring higher productivity
Productivity
Productivity is a measure of the efficiency of production. Productivity is a ratio of what is produced to what is required to produce it. Usually this ratio is in the form of an average, expressing the total output divided by the total input...
, and thereby economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
.
This is in contrast to the two other conventional economic doctrines, neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
and Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
.
Historical origins
If Adam SmithAdam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...
is the patron saint of classical economics
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
and Keynes of Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
, it is Joseph Schumpeter
Joseph Schumpeter
Joseph Alois Schumpeter was an Austrian-Hungarian-American economist and political scientist. He popularized the term "creative destruction" in economics.-Life:...
who is the patron saint of innovation economics, especially with his classic 1942 book Capitalism, Socialism and Democracy
Capitalism, Socialism and Democracy
Capitalism, Socialism and Democracy is the most famous book by Joseph Schumpeter in which he deals with capitalism, socialism and creative destruction...
. Writing around the same time as Keynes, Schumpeter had a decidedly different take on the economy and on economics. For Schumpeter it was evolving institutions, entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s, and technological change that were at the heart of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
. He argued that creative destruction is crucial in capitalism.
But it is only within the last 15 years that a theory and narrative of economic growth focused on innovation that was grounded in Schumpeter’s ideas has emerged. Innovation economics attempted to answer the fundamental problem in the puzzle of total factor productivity
Total factor productivity
In economics, total-factor productivity is a variable which accounts for effects in total output not caused by inputs. If all inputs are accounted for, then total factor productivity can be taken as a measure of an economy’s long-term technological change or technological dynamism.If all inputs...
growth. Continual growth of output
Output
Output is the term denoting either an exit or changes which exit a system and which activate/modify a process. It is an abstract concept, used in the modeling, system design and system exploitation.-In control theory:...
could no longer be explained only in increase of input
Input
Input is the term denoting either an entrance or changes which are inserted into a system and which activate/modify a process. It is an abstract concept, used in the modeling, system design and system exploitation...
s used in the production process as understood in industrialization. Hence, innovation economics focused on a theory of economic creativity that would impact the theory of the firm and organization decision-making. Hovering between heterodox economics
Heterodox economics
"Heterodox economics" refers to approaches or to schools of economic thought that are considered outside of "mainstream economics". Mainstream economists sometimes assert that it has little or no influence on the vast majority of academic economists in the English speaking world. "Mainstream...
that emphasized the fragility of conventional assumptions and orthodox economics
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
that ignored the fragility of such assumptions, innovation economics aims for joint didactics between the two. As such, it enlarges the Schumpeterian analyses of new technological system by incorporating new ideas of information and communication technology in the global economy.
Indeed, a new theory and narrative of economic growth focused on innovation has emerged in the last decade. Innovation economics emerges on the wage of other schools of thoughts in economics, including new institutional economics
New institutional economics
New institutional economics is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underlie economic activity.-Overview:...
, new growth theory, endogenous growth theory
Endogenous growth theory
Endogenous growth theory holds that economic growth is primarily the result of endogenous and not external force. In Endogenous growth theory investment in human capital, innovation and knowledge are significant contributors to economic growth. The theory also focus on positive externalities and...
, evolutionary economics
Evolutionary economics
Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology...
, neo-Schumpeterian economics– provides an economic framework that explains and helps support growth in today’s knowledge economy
Knowledge economy
The knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...
.
Leading theorists of innovation economics include both formal economists, as well as management theorists, technology policy experts, and others. These include Paul Romer
Paul Romer
Paul Michael Romer is an American economist, entrepreneur, and activist. He is currently the Henry Kaufman Visiting Professor at New York University Stern School of Business and will be joining NYU as a full time professor beginning in 2011...
, Elhanan Helpman
Elhanan Helpman
Elhanan Helpman is an Israeli-American economist who works in the field of international trade, political economy and economic growth.-Biography:...
, W. Brian Arthur
W. Brian Arthur
William Brian Arthur is an economist credited with influencing and describing the modern theory of increasing returns. He has lived and worked in Northern California for many years. He is an authority on economics in relation to complexity theory, technology and financial markets...
, Robert Axtell, Eric Beinhocker
Eric Beinhocker
Eric D. Beinhocker is the author of The Origin of Wealth and a senior advisor to McKinsey & Company, Inc., where he conducts research on economics, management, and public policy issues. He was previously a partner at McKinsey and a coleader of its global strategy practice. His career has bridged...
, Richard R. Nelson, Richard Lipsey
Richard Lipsey
Richard George Lipsey, OC, FRSC is a Canadian academic and economist. He is best known for his work on the economics of the second-best, a theory of constrained optimization by government of the tax system, which he co-authored with Kelvin Lancaster, a mathematical economist of high...
, Michael Porter
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
, Christopher Freeman
Christopher Freeman
Christopher Freeman was an English economist, the founder and first director of Science and Technology Policy Research at the University of Sussex, and one of the most eminent modern Kondratiev wave and business cycle theorists...
.
Theory
Innovation economists believe that what primarily drives economic growth in today’s knowledge-based economy is not capitalCapital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
accumulation, as claimed by neoclassicalism asserts, but innovative capacity spurred by appropriable knowledge and technological externalities. Economics growth in innovation economics is the end-product of knowledge (tacit vs. codified); regimes and policies allowing for entrepreneurship
Entrepreneurship
Entrepreneurship is the act of being an entrepreneur, which can be defined as "one who undertakes innovations, finance and business acumen in an effort to transform innovations into economic goods". This may result in new organizations or may be part of revitalizing mature organizations in response...
and innovation (i.e., R&D expenditures, permits, license
License
The verb license or grant licence means to give permission. The noun license or licence refers to that permission as well as to the document recording that permission.A license may be granted by a party to another party as an element of an agreement...
s); technological spillover
Spillover effect
Spillover effects are externalities of economic activity or processes that affect those who are not directly involved. Odours from a rendering plant are negative spillover effects upon its neighbours; the beauty of a homeowner's flower garden is a positive spillover effect upon neighbours.In the...
s and externalities
Externality
In economics, an externality is a cost or benefit, not transmitted through prices, incurred by a party who did not agree to the action causing the cost or benefit...
between collaborative firms; and systems of innovation that create innovative environments (i.e., cluster
Business cluster
A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban studies, the term agglomeration is used...
s, agglomeration
Agglomeration
In the study of human settlements, an urban agglomeration is an extended city or town area comprising the built-up area of a central place and any suburbs linked by continuous urban area. In France, INSEE the French Statistical Institute, translate it as "Unité urbaine" which means continuous...
s, metropolitan area
Metropolitan area
The term metropolitan area refers to a region consisting of a densely populated urban core and its less-populated surrounding territories, sharing industry, infrastructure, and housing. A metropolitan area usually encompasses multiple jurisdictions and municipalities: neighborhoods, townships,...
s).
In 1970, famed economist Milton Friedman
Milton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
said in the New York Times that a business’s sole purpose is to generate profits for their shareholders and companies that pursued other missions would be less competitive, resulting in fewer benefits to owners, employees, and society. Yet data over the past several decades shows that while profits matter, good firms supply far more, particularly in bringing innovation to the market. This fosters economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
, employment
Employment
Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
gains, and other society-wide benefits. Business school
Business school
A business school is a university-level institution that confers degrees in Business Administration. It teaches topics such as accounting, administration, economics, entrepreneurship, finance, information systems, marketing, organizational behavior, public relations, strategy, human resource...
professor David Ahlstrom asserts: “the main goal of business is to develop new and innovative goods and services that generate economic growth while delivering benefits to society.”
In contrast to neoclassical economics, innovation economics offer differing perspectives on main focus, reasons for economic growth, and the assumptions of context between economic actors:
| Economic thought | Focus | Growth | Context |
|---|---|---|---|
| Neoclassical | Market price signals in using scarce resources | Productive factor accumulation (capital, labor) | Individuals and firms behaving in vacuum |
| Innovation | Innovative capacity to create new processes, products, business models | Knowledge/technology (R&D, patents) | Institutions of research, government, society |
Despite the differences in economic thought, both perspectives are based on the same core premise: the foundation of all economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
is the optimization
Optimization
Optimization or optimality may refer to:* Mathematical optimization, the theory and computation of extrema or stationary points of functionsEconomics and business* Optimality, in economics; see utility and economic efficiency...
of the utilization
Utilization
Utilization is a statistical concept as well as a primary business measure for the rental industry.-Queueing theory:In queueing theory, utilization is the proportion of the system's resources which is used by the traffic which arrives at it. It should be strictly less than one for the system to...
of factors and the measure of success is how well the factor
Factor
A factor, a Latin word meaning 'who/which acts', may refer to:In commerce:* Factor , a person who acts for another, notably a mercantile and/or colonial agent* Factor , a person or firm managing a Scottish estate...
utilization is optimized. Whatever the factors, it nonetheless leads to the same situation of special endowment
Endowment
-Finance:*Financial endowment, relating to funds or property donated to institutions or individuals *Endowment mortgage, a mortgage to be repaid by an endowment policy*Endowment policy, a type of life insurance policy...
s, varying relative price
Price
-Definition:In ordinary usage, price is the quantity of payment or compensation given by one party to another in return for goods or services.In modern economies, prices are generally expressed in units of some form of currency...
s, and production processes. So while, the two differ in theoretical concepts
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, innovation economics can find fertile ground in mainstream economic
Mainstream economics
Mainstream economics is a loose term used to refer to widely-accepted economics as taught in prominent universities and in contrast to heterodox economics...
s, rather than remain in diametric contention.
Evidence
Empirical evidence worldwide points to a positive link between technological innovation and economic performance. The drive of biotechBiotechnology
Biotechnology is a field of applied biology that involves the use of living organisms and bioprocesses in engineering, technology, medicine and other fields requiring bioproducts. Biotechnology also utilizes these products for manufacturing purpose...
firms in Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
was due to the R&D subsidies to joint projects, network
Network
-Mathematics:* Graph * Complex network* Structure* Flow network-Electric, electronic, biological, and biosocial: * Electrical network* Computer network* Biological network* Artificial neural network* Social network...
partners, and close cognitive distance of collaborative partners within a cluster
Business cluster
A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban studies, the term agglomeration is used...
. These factors increased patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
performance in the biotech industry. Additionally, innovation capacity explains much of the GDP growth in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
and China
China
Chinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture...
between 1981-2004 but especially in the 1990s. Their development of a National Innovation System through heavy investment of R&D expenditures and personnel, patents, and high-tech/service exports strengthened their innovation capacity. By linking the science
Science
Science is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe...
sector with the business
Business
A business is an organization engaged in the trade of goods, services, or both to consumers. Businesses are predominant in capitalist economies, where most of them are privately owned and administered to earn profit to increase the wealth of their owners. Businesses may also be not-for-profit...
sector, establishing incentives for innovative activities, and balancing the import of technology
Technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...
and indigenous R&D effort, both countries experienced rapid economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
in recent decades. Also, the Council of Foreign Relations asserted that since the end of the 1970s, the U.S. has gained a disproportionate share of the world’s wealth through their aggressive pursuit of technological change
Technological change
Technological change is a term that is used to describe the overall process of invention, innovation and diffusion of technology or processes. The term is synonymous with technological development, technological achievement, and technological progress...
, demonstrating that technological innovation is a central catalyst of steady economic performance. Concisely, evidence shows that innovation contributes to steady economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
and rise in per capita income
Per capita income
Per capita income or income per person is a measure of mean income within an economic aggregate, such as a country or city. It is calculated by taking a measure of all sources of income in the aggregate and dividing it by the total population...
.
However, some empirical studies investigating the innovation-performance-link lead to rather mixed results and indicate that the relationship be more subtle and complex than commonly assumed. In particular, the relationship between innovativeness and performance seems to differ in intensity and significance across empirical contexts, environmental circumstances, and conceptual dimensions.
Geography
While innovation is important, it is not a happenstance occurrence as a natural harbor or natural resourceNatural resource
Natural resources occur naturally within environments that exist relatively undisturbed by mankind, in a natural form. A natural resource is often characterized by amounts of biodiversity and geodiversity existent in various ecosystems....
s are, but a deliberate, concerted effort of market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
s, institution
Institution
An institution is any structure or mechanism of social order and cooperation governing the behavior of a set of individuals within a given human community...
s, policymakers
Public policy
Public policy as government action is generally the principled guide to action taken by the administrative or executive branches of the state with regard to a class of issues in a manner consistent with law and institutional customs. In general, the foundation is the pertinent national and...
, and effect use of geographic space
Geography
Geography is the science that studies the lands, features, inhabitants, and phenomena of Earth. A literal translation would be "to describe or write about the Earth". The first person to use the word "geography" was Eratosthenes...
. In global economic restructuring
Economic restructuring
Economic restructuring refers to the phenomenon of Western urban areas shifting from a manufacturing to a service sector economic base. This transformation has affected demographics including income distribution, employment, and social hierarchy; institutional arrangements including the growth of...
, location has a become key element in establishing competitive advantage as regions focus on their unique assets to spur innovation (i.e., information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
in Silicon Valley
Silicon Valley
Silicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...
, CA; digital media
Digital media
Digital media is a form of electronic media where data is stored in digital form. It can refer to the technical aspect of storage and transmission Digital media is a form of electronic media where data is stored in digital (as opposed to analog) form. It can refer to the technical aspect of...
in Seoul
Seoul
Seoul , officially the Seoul Special City, is the capital and largest metropolis of South Korea. A megacity with a population of over 10 million, it is the largest city proper in the OECD developed world...
, South Korea). As Harvard economist Michael Porter
Michael Porter
Michael Eugene Porter is the Bishop William Lawrence University Professor at Harvard Business School. He is a leading authority on company strategy and the competitiveness of nations and regions. Michael Porter’s work is recognized in many governments, corporations and academic circles globally...
asserts clusters
Business cluster
A business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban studies, the term agglomeration is used...
are the incubators of innovation in their cohesive, agglomeration of similar industries, technologies, skilled laborers, research institutions, and other necessary components of innovative environments. No longer is comparative advantage
Comparative advantage
In economics, the law of comparative advantage says that two countries will both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods...
relevant which focused on input-costs. Now, competitive advantage, or the productive use of inputs which requires continual innovation, is necessary. Even more, thriving metropolitan economies
Metropolitan economy
A metropolitan economy refers to the cohesive, naturally evolving concentration of industries, commerce, markets, firms, housing, human capital, infrastructure and other economic elements that are comprised in a particular metropolitan area...
that carry multiple clusters (i.e., Tokyo
Tokyo
, ; officially , is one of the 47 prefectures of Japan. Tokyo is the capital of Japan, the center of the Greater Tokyo Area, and the largest metropolitan area of Japan. It is the seat of the Japanese government and the Imperial Palace, and the home of the Japanese Imperial Family...
, Chicago
Chicago
Chicago is the largest city in the US state of Illinois. With nearly 2.7 million residents, it is the most populous city in the Midwestern United States and the third most populous in the US, after New York City and Los Angeles...
, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
) essentially fuel national economies through their pools of human capital
Human capital
Human capitalis the stock of competencies, knowledge and personality attributes embodied in the ability to perform labor so as to produce economic value. It is the attributes gained by a worker through education and experience...
, innovation
Innovation
Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
, quality place
Public space
A public space is a social space such as a town square that is open and accessible to all, regardless of gender, race, ethnicity, age or socio-economic level. One of the earliest examples of public spaces are commons. For example, no fees or paid tickets are required for entry, nor are the entrants...
s, and infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
. Cities become “innovative spaces” and “cradles of creativity” as drivers of innovation. They become essential to the system of innovation through the supply side: ready, available, abundant capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
and labor; good infrastructure
Infrastructure
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise, or the services and facilities necessary for an economy to function...
for productive activities, and diversified production structures that spawn synergies and hence innovation. In addition they grow due to the demand side: diverse population of varying occupations, ideas, skills; high and differentiated level of consumer demand; and constant recreation of urban order especially infrastructure of street
Street
A street is a paved public thoroughfare in a built environment. It is a public parcel of land adjoining buildings in an urban context, on which people may freely assemble, interact, and move about. A street can be as simple as a level patch of dirt, but is more often paved with a hard, durable...
s, water systems, energy
Energy
In physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
, and transportation.
Worldwide Examples
- semiconductorSemiconductorA semiconductor is a material with electrical conductivity due to electron flow intermediate in magnitude between that of a conductor and an insulator. This means a conductivity roughly in the range of 103 to 10−8 siemens per centimeter...
s and information technologyInformation technologyInformation technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...
in Silicon ValleySilicon ValleySilicon Valley is a term which refers to the southern part of the San Francisco Bay Area in Northern California in the United States. The region is home to many of the world's largest technology corporations...
in California - high-technology and life sciencesLife sciencesThe life sciences comprise the fields of science that involve the scientific study of living organisms, like plants, animals, and human beings. While biology remains the centerpiece of the life sciences, technological advances in molecular biology and biotechnology have led to a burgeoning of...
in Research Triangle ParkResearch Triangle ParkThe Research Triangle Park is a research park in the United States. It is located near Durham, Raleigh, and Chapel Hill, in the Research Triangle region of North Carolina...
in North Carolina - energyEnergyIn physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
companies in Energy Corridor in Houston, Texas - financial products and services in New York CityNew York CityNew York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
- biotechnologyBiotechnologyBiotechnology is a field of applied biology that involves the use of living organisms and bioprocesses in engineering, technology, medicine and other fields requiring bioproducts. Biotechnology also utilizes these products for manufacturing purpose...
in Genome ValleyGenome ValleyGenome Valley is a Biopharmaceutical zone spread across 600 km² in Hyderabad, India.Covering the suburbs - Shamirpet, Medchal, Uppal, Patancheru, Jeedimetla, Gachibowli and Keesara, the Valley has developed as a natural hub for biotech research, training and manufacturing activities.The...
in Hyderabad, India - nanotechnologyNanotechnologyNanotechnology is the study of manipulating matter on an atomic and molecular scale. Generally, nanotechnology deals with developing materials, devices, or other structures possessing at least one dimension sized from 1 to 100 nanometres...
in BostonBostonBoston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had...
, Massachusetts - precision engineeringPrecision engineeringPrecision engineering is a subdiscipline of electrical engineering, electronics engineering, mechanical engineering, and optical engineering concerned with designing machines, fixtures, and other structures that have exceptionally low tolerances, are repeatable, and are stable over time...
in South YorkshireSouth YorkshireSouth Yorkshire is a metropolitan county in the Yorkshire and the Humber region of England. It has a population of 1.29 million. It consists of four metropolitan boroughs: Barnsley, Doncaster, Rotherham, and City of Sheffield...
, United KingdomUnited KingdomThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages... - petrochemicalPetrochemicalPetrochemicals are chemical products derived from petroleum. Some chemical compounds made from petroleum are also obtained from other fossil fuels, such as coal or natural gas, or renewable sources such as corn or sugar cane....
complexes in Rio de JaneiroRio de JaneiroRio de Janeiro , commonly referred to simply as Rio, is the capital city of the State of Rio de Janeiro, the second largest city of Brazil, and the third largest metropolitan area and agglomeration in South America, boasting approximately 6.3 million people within the city proper, making it the 6th...
, BrazilBrazilBrazil , officially the Federative Republic of Brazil , is the largest country in South America. It is the world's fifth largest country, both by geographical area and by population with over 192 million people... - trainTrainA train is a connected series of vehicles for rail transport that move along a track to transport cargo or passengers from one place to another place. The track usually consists of two rails, but might also be a monorail or maglev guideway.Propulsion for the train is provided by a separate...
locomotiveLocomotiveA locomotive is a railway vehicle that provides the motive power for a train. The word originates from the Latin loco – "from a place", ablative of locus, "place" + Medieval Latin motivus, "causing motion", and is a shortened form of the term locomotive engine, first used in the early 19th...
and rolling stockRolling stockRolling stock comprises all the vehicles that move on a railway. It usually includes both powered and unpowered vehicles, for example locomotives, railroad cars, coaches and wagons...
manufacturing in BeijingBeijingBeijing , also known as Peking , is the capital of the People's Republic of China and one of the most populous cities in the world, with a population of 19,612,368 as of 2010. The city is the country's political, cultural, and educational center, and home to the headquarters for most of China's...
, ChinaChinaChinese civilization may refer to:* China for more general discussion of the country.* Chinese culture* Greater China, the transnational community of ethnic Chinese.* History of China* Sinosphere, the area historically affected by Chinese culture... - automotive engineeringAutomotive engineeringModern automotive engineering, along with aerospace engineering and marine engineering, is a branch of vehicle engineering, incorporating elements of mechanical, electrical, electronic, software and safety engineering as applied to the design, manufacture and operation of motorcycles, automobiles,...
in BerlinBerlinBerlin is the capital city of Germany and is one of the 16 states of Germany. With a population of 3.45 million people, Berlin is Germany's largest city. It is the second most populous city proper and the seventh most populous urban area in the European Union...
, GermanyGermanyGermany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate... - digital mediaDigital mediaDigital media is a form of electronic media where data is stored in digital form. It can refer to the technical aspect of storage and transmission Digital media is a form of electronic media where data is stored in digital (as opposed to analog) form. It can refer to the technical aspect of...
technologies in Digital Media CityDigital Media CityDigital Media City is the first high-tech complex in the world for digital technologies, housing ubiquitous networked offices, apartments, exhibitions, conference halls and cultural centers in Seoul, South Korea. It was constructed in 2002 across and approximately 1.7 times the size of the Canary...
in SeoulSeoulSeoul , officially the Seoul Special City, is the capital and largest metropolis of South Korea. A megacity with a population of over 10 million, it is the largest city proper in the OECD developed world...
, South KoreaSouth KoreaThe Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...
See also
- Business clusterBusiness clusterA business cluster is a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. In urban studies, the term agglomeration is used...
- Economic developmentEconomic developmentEconomic development generally refers to the sustained, concerted actions of policymakers and communities that promote the standard of living and economic health of a specific area...
- Keynesian economicsKeynesian economicsKeynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
- Knowledge economyKnowledge economyThe knowledge economy is a term that refers either to an economy of knowledge focused on the production and management of knowledge in the frame of economic constraints, or to a knowledge-based economy. In the second meaning, more frequently used, it refers to the use of knowledge technologies to...
- InnovationInnovationInnovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...
- Innovation saturationInnovation saturationInnovation Saturation was introduced by American economist and historian Tom Osenton in his 2004 book The Death of Demand: Finding Growth in a Saturated Global Economy . Innovation Saturation is a business cycle theory that posits that every company experiences two major growth trends during its...
- International Innovation Index
- Metropolitan economyMetropolitan economyA metropolitan economy refers to the cohesive, naturally evolving concentration of industries, commerce, markets, firms, housing, human capital, infrastructure and other economic elements that are comprised in a particular metropolitan area...
- Neoclassical economicsNeoclassical economicsNeoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
External links
- Innovation Economics: The Economic Doctrine for the 21st Century
- Books and Journal Articles on Innovation Economics
- Innovation Economics: The Integration and Capitalization of Knowledge
- Innovation Economics Roundtable
- Business Week Podcast - Innovation Economics
- Innovation Economics in practice for city/regional growth and economic development