**4. The new economy: theoretical framework of the knowledge-based economy**

Neoclassical economics solely took into account labor and capital in recent decades, but in the modern economy, this approach is no longer regarded as useful or impartial. Like how the latter two supplanted land and labor 200 years ago, capital and energy are being replaced as the key wealth-creating assets by the sheer volume of information and new knowledge. Furthermore, technological advancements in the twenty-first century have changed the majority of wealth-generating strategies from being physical to becoming knowledge-based [17].

The main components of production are knowledge and technology. Knowledge and experience may be instantaneously disseminated around the world due to the increasing mobility of global information and labor, and any advantage a corporation acquires could be erased by overnight competition developments. The only comparative advantage a business will benefit from is its innovation process, which combines technical expertise and creative thinking to address a never-ending stream of business challenges, as well as its capacity to create value from information in the fields of knowledge-based economies and knowledge management in the new information society.

It is difficult to define the knowledge-based economy since it is impossible to specify with any degree of certainty the product that knowledge supports. Perhaps, as a result, there are few definitions that explain the knowledge-based economy in ways that could make it possible to assess and measure it. Several definitions that we thought were pertinent include:


It is important to keep in mind that the term *knowledge economy* actually refers to the entire global economic system, which various observers have described as a transition to an information society economy. In an interconnected, international economy where knowledge resources such as the information revolution, know-how, expertise, and intellectual property are much more important than others, the rules and practices that defined success in the industrial economy must be rewritten as part of the transition. Land, natural resources, and even labor are some examples of economic resources [20].

The regulations need to be reexamined, according to analysts in the knowledgebased economy, at the level of businesses and industries in terms of knowledge management and at the level of government policies from the perspective of a knowledge policy. Knowledge and education, also known as human capital, are fundamental concepts in this area of economic activity. Human capital can be viewed as a corporate product, as well as educational and inventive intellectual products and services, which can be exported for a high return or as a productive commodity.

Peter F. Drucker (1909–2005) first described the foundation of the knowledge economy in his book The Effective Executive (1966), where he distinguished between the conventional worker, who uses physical labor to produce goods and services, and the knowledge worker, who uses mental effort to create ideas, information, and knowledge:

*The fifty-fold rise in the productivity of the manual worker in the manufacturing industry was the most significant and in fact unique contribution of management in the twentieth century. The most significant contribution management must make in the twenty-first century is to boost knowledge workers' and laborers' output in a similar manner. Manufacturing equipment was a company's most valuable asset in the twentieth century. Knowledge workers and their productivity will be the most important resource for any firm in the twenty-first century, whether it is for profit or not. [21]*

The transition to a knowledge-based economy is significant because it distinguishes it from the industrial economy that predominated for the previous 200 years [10]. These variations include:

The information revolution accelerated the transition to knowledge codification and raised its proportion in the knowledge stock of advanced economies. All knowledge that can be reduced to information and codified can now be distributed globally at a low cost. As a result, knowledge gains a number of physical positive qualities. Codification facilitates market transactions and accelerates the spread of knowledge. Additionally, codification reduces the significance of redundant efforts in knowledge acquisition. It minimizes knowledge dispersion by establishing connections between various topics and specializations. With these advances, the growth rate of accessible knowledge stocks is predicted to accelerate, which will be beneficial for economic progress.

Knowledge, skills, and learning—Information and communication technology have significantly decreased costs and improved organizations' capacity to codify their knowledge, process information, and distribute it. In this way, they have changed the overall inventory of knowledge's balance between codified and tacit information. Tactic knowledge in the form of the abilities required to deal with codified knowledge becomes more important than ever due to the accessibility and affordability of information access, as well as the importance of skills and competencies connected to the selection and efficient utilization of information.

The development and application of knowledge, as well as its distribution, are becoming more and more important in the knowledge-based economy. As a result, firms and entire national economies will be more successful if they are effective at gathering, assimilating, and applying knowledge as well as generating it.

#### **4.1 The difference between the knowledge-based economy and the traditional economy**

The knowledge-based economy differs from the traditional economy in several key aspects:

*Entrepreneurship in Emerging Economies: The Role of Innovation and Institutions DOI: http://dx.doi.org/10.5772/intechopen.109893*


Decision-makers, managers, and knowledge experts must adopt new methods in order to address these features [22].

#### **4.2 Determinants of the knowledge economy**

Business regulations and national competitiveness are evolving as a result of at least three primary driving forces, according to economists who specialize in the knowledge-based economy [20]:

*Globalization*: The knowledge economy is also fostered by the swift globalization of economic activity. While there have been earlier times when the global economy has been relatively relaxed, the speed and scope of the current phase of globalization are unprecedented.

*Increasing Knowledge Intensity*: Over the past 20 years, the usage of information and communication technology has proliferated across all spheres of business and public life. Falling processing costs and the fast creation of apps suited to user requirements were the driving forces behind this expansion. The ability to manipulate, store, and transport massive amounts of data at extremely low cost is the economic revolution's key element.

The permeability of these technologies is an important factor as well. The application of knowledge in all sectors of the economy is substantially aided by the marginal cost of handling, storing, and transmitting information being nearly negligible, and the knowledge intensity of economic operations has significantly increased.

*Computer networks and connectivity*: Due to the growth generated by the flow of information, computer networks, and connectivity—part of the IT revolution—play a significant role in the development of each and every economy. This is something that developing nations have acknowledged, and they are actively working to leverage ICT as a platform for socioeconomic development.

E-commerce is a growing economic sector that will likely expand much more significantly in the years to come. According to estimations, there are currently hundreds of millions of Internet trade orders, but within a decade there will probably be billions. Because we now live in a networked environment, enterprises must undergo a significant transition. ICT has the power to reshape businesses, workplaces, and the global economy [23]. Geographical boundaries would vanish with the advent of the new economy, which would be represented by the growth of the Internet.

The growth of knowledge as a factor of production and its effects on skills, learning, organization, and innovation can be used to describe the evolution of the knowledge-based economy. There are several positive aspects of this form of economy, including [24]:

