Question

What is the relationship between innovation and ultimately economic growth? What are the factors which lead to innovation? Are there policies that a government can take to encourage innovation? Please answer in 250 words or more

Answer 1

Q.What is the relationship between innovation and ultimately economic growth? What are the factors which lead to innovation? Are there policies that a government can take to encourage innovation?

Answer:  Before going to discuss the relationship between innovation and economic growth, it is essential to know about innovation. In economics, innovation describes the development and application of new ideas and technologies to make production more efficient. As the definition of innovation suggests, Innovation is positively related to economic growth. With the help of innovation, the output can be increased by using the same input by adopting new ideas and technology in the process of production. innovation leads to an increase in the productivity of both labour and capital which ultimately leads to economic growth. Innovation not only promotes economic growth it also increases the quality of the product under production.

There are various factors which lead to innovation which are discussed below.

1. Desire or want: It is one of the important factors which affects innovation. If there is no desire or want there is no innovation. Suppose in an industry there is no desire to produce more, the firm is happy with the product it is producing then there is no need for innovation which increases the production or the quality of the product.

2. Freedom: Freedom in organizational structure promotes innovation. If there is no freedom of work in an organization then innovation will not take place.

3. Resources: If resources are sufficient then we can think of innovation which can use those resources in an efficient manner.

4. Organizational Motivation: The organization should motivate its worker for innovation.

5. Research & Development: It helps to promote innovation when a country or an organization invest more in research & development the new idea emerges. The organization which invest more in R&D is more innovative and vice versa.

As discussed, innovation is very much necessary for economic growth. So the government should adopt such policies which encourage innovation. Policies such as increasing government spending on research and development, Tax cuts on research and development, cooperative research will encourage innovation.