In recent years, the term “innovation economy” has gained momentum among business leaders, scientists, and researchers alike. This new economy revolves around the belief that institutions and technological advancements are the driving force behind economic growth.

Innovation is seen as the motivating force that propels our society into the future, with new ideas becoming a key foundation for economic prosperity.

As Silicon Valley, the most dynamic industrial region in the world, has become a leading center and ecosystem for innovation and scientific development.

In recent years, innovation has been seen as the new force in modern capitalism. The concept of the innovative economy summarizes the idea that entrepreneurs and their new ideas unleash the “creative imagination,” which leads to new job opportunities in the future. In other words, entrepreneurship as a process leads to the replacement of current products or methods with new products and production methods.

The innovative economy relies on the creative ability of citizens to innovate new ideas, products, and services and implement them instead of relying solely on the material support of a specific product.

The emergence of the innovation economy:

The innovation economy is a relatively new branch of economics that focuses on innovation alongside the study of technology, knowledge, and entrepreneurship.

Its aim is to understand where new ideas come from and how we can introduce policies that encourage the development of new ways of thinking. As many countries move away from the industrial production model and towards a knowledge-based economy, the economics of innovation becomes increasingly important. Despite being a somewhat new field, the economics of innovation has quickly gained prominence in recent years.

The economics of innovation is a new and growing field in economic theory, applied economics, and experimental economics that focuses on innovation and entrepreneurship. It emerges from other schools of thought in economics, including:

The New Institutional Economics is an economic perspective that aims to expand the scope of economics by focusing on the standards and rules that underlie economic, social, and legal activities.

New Growth Theory is an economic concept that states that unlimited human needs and desires encourage permanent increases in productivity and economic growth. This theory proves that the Gross Domestic Product (GDP) per capita will continuously increase due to individuals’ constant pursuit of higher profits.

Endogenous growth theory considers that economic growth primarily results from internal forces rather than external ones. This theory views investment in human capital, innovation, and knowledge as significant factors contributing to economic growth by increasing the motivation for innovation.

Evolutionary Economics is a theory that suggests individuals and society as a whole determine the development of economic processes and shape economic behavior. Evolutionary economists believe that the economy is interactive, constantly changing, chaotic, and does not always tend towards a state of equilibrium as traditional theories suggest.

The new Schumpeterian economy is based on Creative Destruction. Joseph Schumpeter sees the entrepreneur as the cornerstone of capitalism and the source of creativity and vitality that drives the capitalist economy. He used the term “creative destruction” to describe the process of dismantling old practices to make way for new technologies, new types of products, and new methods of production and distribution.

Rethinking how to encourage innovation within institutions and companies

Given the recent ongoing changes in the global market, many business leaders and executives realize the need for their companies to embrace the innovation economy, understand the changing conditions of their market, identify emerging threats and opportunities, and develop new strategies in response to that. There is no quick and easy solution to properly prepare for what can be expected in the future. Many companies in various sectors will feel the effects of innovation to some extent. These changes may be in the market.