Innovation and Economic Growth

Dr. Maya Moalla

The innovation process can be defined as the tradable economic process in which the “new combinations” draw the necessary new resources, knowledge, or equipment from the old ones. The “combinatory” activity describes the entrepreneurial function. The entrepreneurial function implies supplying new organizations, systems, products, knowledge, strategies, markets, and services. First, it will be challenging to change the usual routines. However, if acquiring knowledge becomes a habit, innovation becomesautomatic. The accumulated theoretical-practical experience will be itself an economic force that enables the discovery of new ways of doing things. The innovation also can be defined as Schumpeterian claimed: “acquiring the knowledge until it sinks into the strata of sub-consciousness”. It is not only the new ideas that remove the individuals’ unwillingness to adopt the new methods, but also putting these ideas into practice. A comprehensive policy should be applied at the whole economy and individual levels. At the individual level, the managerial competencies to take a risk, discover solutions, and create rules are important factors in stimulating innovation. We mean by the managerial competencies: the leadership skills, the energy of action, the dynamism, and the constructiveness. At the economy as a whole level, the innovation process can be defined as the industrial change by which the economic structural changes continuously. That is the structural change process. The patterns of the structural change process from the supply side are the variations in labor augmenting technological progress. The patterns of the structural change process from the demand side are the intermediate demand, the final demand, and the trade. At the low-income levels, the scarcity of capital-intensive inputs increases the prices of capitalintensive goods and goods with low elasticity of substitution as well. Over time, the availability of those inputs (depending on catching up to the technological progress) decreases the prices stimulating the process of structural change. At the high-income levels, the demand shifts from food consumption to manufactured goods and then to services. In addition, trade plays a significant role in this process. The nature of trade and the type of specialization determined by natural resources and the applied policies stimulate the transformation of production factors from low-productive activities to high-productive ones and vice versa. Therefore, the innovation process shapes economic evolution and changes the economic structure over time. The innovation process can be attributed to the technological progress that fosters the spread of high-value activities to increase market shares. To explain innovation more clearly, we can say that the economy consists of clusters and each one of them consists of connected activities depending on the impact of technological progress either by self-innovation or by imitation in order to survive and gain more profits. The activities that catch up to technological progress grow faster than other activities and even more than the whole economy. However, this is temporary and only happens until technological progress spread through the other activities in the same cluster and then to the other related clusters and the whole economy. The growth of the first cluster starts to decrease till catching up to new innovation or imitating it. In order to survive, the rest of the firms have to make further improvements and increase their productivity, otherwise, they will be forced to exit the market.

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Maya Moalla

I am a forest engineer (KTÜ). I completed my master's degree and PhD. in economics at Mersin University. I am interested in economic growth and development. Looking for academic positions.

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