Driving the Knowledge Economy: Explaining the Impact of Regional Innovation Capacity on Economic Performance

Abstract

ABSTRACT The knowledge economy represents an intangible economic configuration whereby knowledge is valued as a key factor in production. Economic growth in leading world economies is increasingly based on knowledge, in addition to tangible assets such as capital and labor. Knowledge work involves creation, and can therefore be operationalized by innovation for empirical analysis. Under this definition, this study looks at the innovation capacities across all metropolitan regions in the U.S., and the extent to which they determine economic growth in these regions. Using industry data on U.S. metropolitan regions from 1988 to 2007, the research findings show that the impact of innovation capacity on economic growth has significantly increased after the dot com era. However, the magnitude of increment was small. This can be explained by the wide variations in the U.S. in industry bases, and their region-specific contextual factors. To explain these findings, the study concludes with a literature review on a contextual approach to study the economic impact of innovation capacity on a region’s economic performance. The researcher proposes taking a more focused and less aggregated approach to study and compare regions, so as to account for various contextual factors. Keywords: Innovation Capacity, Knowledge Economy, Economic Growth