Knowledge Economy


Knowledge or intellectual assets can be a boon for economies. As the world is getting technologically savvier, the use of intellectual capital in shaping the economies are growing. In such circumstances, the idea of a knowledge economy can be an important source of wisdom.

Definition: Knowledge Economy

A knowledge economy is a type of economy that depends largely on intellectual capital, and scientific developments and research play a key role in it. It is more prevalent in highly-developed nations, and a large part of consumption and production in it depends on intangible assets. These intangible assets may include skills and knowledge whereas the intellectual properties of the workers may be considered as well.

The basic ingredients of traditional economies the prominent factors of production are land, labor, capital, and entrepreneur. In knowledge economies, however, production is based mainly on technologies and the technological skills of the labor or the manpower.

The organization for economic co-operation and development (OECD) states that a knowledge economy is associated with the following three business sectors:

  • Industries of the Service Sector, such as education and healthcare.

  • High-tech industries, such as aerospace and computers

  • Business services, such as communications and insurance.

Types of the Knowledge Economy

According to some economists, the knowledge economy can be divided into three distinct types, which are the learning economy, the creative economy, and the open knowledge economy.

Some of the world's modern economies fall clearly into one of these types but most show overlap and confining them to any one of these economies seems irrational.

The Learning Economy

In the learning economy, education and skills earned through education are considered meaningful assets. There is an encouragement to excel in education and the government aids in this pursuit. Usually, the skills learned for knowledge economy are related to STEM (Science, Technology, Engineering, and Mathematics) subjects, but research in other important domains, such as healthcare is also encouraged.

In the learning economy, the resources and credentials of education are shared among participants openly and clearly. The idea is to share the positive impacts of modern science and technological ideas to spearhead a bolstering economy that leads to innovation and new ideas.

The Creative Economy

In a creative economy, ingenuity and creativity are highly encouraged. It refers to a system where creativity is prioritized in the entire economic system as opposed to mere participation in creative purposes. As creativity is core to intellectual property, some economists suggest creative economies as central to contemporary free-market economies.

The Open-Knowledge Economy

Open-knowledge Economy refers to a type of economy that is based on transparency, access, and inclusiveness to the maximum possible instance. In such economies, educational and creative opportunities are reachable to the widest possible audience. Some economists consider open-knowledge economies to be non-propertarian that allow open education and open science philosophies.

Example of Knowledge Economy

Examples of knowledge economies are aplenty.

  • The US is an example of a learning economy where education and its bearings are considered very valuable.

  • Switzerland, with a base on all three types of knowledge economies, is considered the most highly-prioritized knowledge economy.

In terms of operations, a knowledge economy offers good education to the best of minds to create knowledgeable workers who pass on their skills to users so that innovation in application leads to the emergence of a highly valued knowledge economy.

Characteristics of Knowledge-Economy

The most prominent characteristics of a knowledge economy include the following:

  • Information and knowledge are used as the key drivers of the economy.

  • Growth in OECD-implied industries mentioned above.

  • Higher demand for skilled workers.

  • Use of knowledge as an infinite resource instead of capital which gets exhausted with the advent of time. Knowledge is actually refined with use.

  • Importance of tacit knowledge above general skills. Codified knowledge is highly prioritized.

  • A nature that diffuses global expertise. Globalization disrupts the core of the economic process.

  • Both users and producers use knowledge for better results and a top-down approach is discouraged. Examples include open software access platforms.

  • Knowledge is transferred from one industry to another. This is referred to as knowledge spill over.

  • Increased automation results due to the use of high-end technology. However, there is a need for skilled manpower to run the technologies too.

Disadvantages of a Knowledge Economy

Some of the disadvantages of a knowledge economy are -

Increased gap between high-skilled and low-skilled workers

Due to the emergence of the knowledge economy, the gap between high-skilled and low-skilled workers may widen. This may pose a threat to those who have low skills.

Emergence and disadvantages of ‘Gig Economy’

The knowledge economy may lead to the emergence of gig economies where highly skilled workers are paid well but low-skilled employees work for low remunerations.

Limited number of high-skilled jobs

Although high-skilled employees are in demand, there is a limited requirement for high-skilled workers due to automation. This may lead to confusion and disappointment5 for higher degree holders.

Low productivity rate

Although the knowledge economy is considered powerful, due to secular stagnation, productivity rates may plummet. This is what has been experienced by highly developed knowledge economies in the last decade.

Importance of Knowledge Economy

Knowledge economies may have various disadvantages, but it has some notable importance too. They are -

  • Knowledge economies drive growth through innovation and customization.

  • Oriented toward better human capital. Organizations must attract and retain customers.

  • Collaborative environments may enhance the distribution and benefits of information-sharing.

  • With increasing knowledge and the existence of better human resources, knowledge economies are considered superior to traditional forms of economies.

  • In knowledge economies, there is a greater demand for skilled workers. The university degree holders may get better benefits in knowledge economies.

  • Unemployment is increasingly shifted towards low-skilled employees. According to OECD, the unemployment rate among high-skilled labor is distinctly less than low-skilled employees.


The knowledge economy is the economy of the future. As the impetus of technology disrupts human societies, the need for knowledge will grow in the economies. This is apparent from the situation of highly-developed nations that depend on high-skilled labor nowadays than low-skilled employment.

There are however some dents too. Knowledge economies rely too much on high-end technologies which lead to automation and widen the gap between rich and poor. Recent reports of the emergence of the gig economy mean that more employees will have to work for fewer remunerations. This may cause social disharmony in the long run.

Despite alarming disadvantages, there is no escape from the concept of knowledge economies for the developed and developing nations. As the future gets more technology-oriented, no one can ignore the importance of a knowledge economy and instead should try to imbibe one.


1. What is the most reasonable need for economies turning into knowledge economies?

Ans. Globalization is the most influential creator of knowledge economies.

2. Why is escaping from a knowledge economy prove costly for developing economies?

Ans. Developing economies need to embrace a knowledge economy because they are the hub of activities of global organizations. These economies need to adapt to the new world order so that they may remain competitive in the expanding markets. Escaping from the knowledge economy would only mean shutting the eyelids to avoid the opportunity that costs enough investment in the initial phases.

3. What is the size of the intellectual property market in the US?

Ans. As of 2021, the total value of the intellectual property market in the US is $6.6 trillion.


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