Innovation economy

Innovation economics is a growing economic theory that emphasizes entrepreneurship and innovation. Innovation economics is based on two fundamental tenets: that the central goal of economic policy should be to spur higher productivity through greater innovation, and that markets relying on input resources and price signals alone will not always be as effective in spurring higher productivity, and thereby economic growth.

This is in contrast to the two other conventional economic doctrines, neoclassical economics and Keynesian economics.

Joseph Schumpeter was one of the first and most important scholars who extensively has tackle the question of innovation in Economics. In contrast to his contemporary John Maynard Keynes, Schumpeter contended that evolving institutions, entrepreneurs, and technological change were at the heart of economic growth, not independent forces that are largely unaffected by policy. He argued that "capitalism can only be understood as an evolutionary process of continuous innovation and 'creative destruction'".

But it is only within the last 15 years that a theory and narrative of economic growth focused on innovation that was grounded in Schumpeter’s ideas has emerged. Innovation economics attempted to answer the fundamental problem in the puzzle of total factor productivity growth. Continual growth of output could no longer be explained only in increase of inputs used in the production process as understood in industrialization. Hence, innovation economics focused on a theory of economic creativity that would impact the theory of the firm and organization decision-making. Hovering between heterodox economics that emphasized the fragility of conventional assumptions and orthodox economics that ignored the fragility of such assumptions, innovation economics aims for joint didactics between the two. As such, it enlarges the Schumpeterian analyses of new technological system by incorporating new ideas of information and communication technology in the global economy.

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