Knowledge Economy


DEFINITION of 'Knowledge Economy'

A system of consumption and production that is based on intellectual capital. The knowledge economy commonly makes up a large share of all economic activity in developed countries. In a knowledge economy, a significant part of a company's value may consist of intangible assets, such as the value of its workers' knowledge (intellectual capital). However, generally accepted accounting principles do not allow companies to include these assets on balance sheets.

BREAKING DOWN 'Knowledge Economy'

Lesser-developed countries tend to have agriculture or agriculture and manufacturing-based economies, while developing countries tend to have manufacturing or manufacturing and service-based economies, and developed countries tend to have service-based economies.

Most countries' economies will consist of each of these three major categories of economic activity, but in differing proportions relative to the wealth of that country. Examples of knowledge economy activities include research, technical support and consulting.

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