Ideas fundamentally drive productivity, and hence living standards, over the long term. Ideas can contribute to innovative products and services, or to new ways of organising production and consumption.
Knowledge capital, or the accumulation of ideas and know-how, therefore plays an important role in productivity growth, from research and inventions that are ultimately commercialised, to the way firms are organised and interact in markets, to the flows of knowledge in society.
The production of knowledge itself is part of this wide scope of knowledge capital, which creates endogeneity, or feedback loops. This means there is the potential for significant increasing returns to scale when new technologies are implemented. It also underlines the potential barriers created by co-ordination problems.
A knowledge-based economy is one of virtuous or vicious circles, with policies playing an important co-ordinating role. This paper highlights key parts of the literature and sets out future areas for research.
This is part of a series of working papers outlining the key issues and questions of The Productivity Institute’s key research themes. This paper covers the Knowledge Capital theme. Other papers will provide an overview of Human capital, Organisational capital, Institutions & governance, Geography and place, Macroeconomic trends & policy, Social, environmental and technological transitions and Measurements & methods.
Authors Diane Coyle