Reviewed by Aug 27, 2020| Updated on
What is a Knowledge Economy?
A system of consumption and production based on intellectual capital is the knowledge economy. In developed countries, it typically represents a large component of all economic activity.
In a knowledge economy, an important part of the value of a business can consist of intangible assets, such as the value of the expertise of its employees or intellectual capital. However, accounting principles do not allow businesses to include such assets in their balance sheets.
Understanding a Knowledge Economy
The less developed countries generally prefer to have economies based on agriculture and manufacturing. A developing country has a manufacturing and service-based economy, and the economies of the developed countries tend to be service-based.
The economies of most countries are composed of each of these three major categories of economic activity, but in varying proportions relative to that country's wealth. Research, technical support, and consulting are some of the examples of knowledge economy studies.
Throughout the Information Age, the global economy evolved towards a knowledge-based economy, taking with it the best practices of the economy of every country. Furthermore, knowledge-based factors make an interconnected and global economy in which knowledge sources, such as human expertise and trade secrets, are key factors in economic growth and are considered important economic resources.
Human Capital as Knowledge Economy
The knowledge economy discusses how education and information, that is to say, "human capital," can serve as a productive commodity or business product to be sold and exported to produce income for individuals, companies, and the economy.
Instead of natural resources or physical efforts, this component of the economy relies heavily on intellectual capacity. Products and services based on intellectual expertise advance technical and scientific fields in the knowledge economy, fostering economic innovation as a whole.
Examples from the Real World
All components of a knowledge economy in the real world are academic institutions, companies involved in research and development (R&D), programmers developing new software and data search engines, and health workers using digital data to improve treatments.