Innovation: analysis of requirements and drivers for sustained economic growth
King's heart bridge
Summary: against the backdrop of the global slowdown in economic growth and the marginal benefits of the traditional factor-driven model, “requirement for sustained economic growth is innovation” has become central to the mainstream consensus in the economics community and to national policy practices. Based on neoclassical growth theory, endogenous growth theory and bear pett innovation theory, this paper provides a systematic illustration of the inherent logic of innovation breaking through growth bottlenecks, raising all-factor productivity, reshaping industrial structures and extending economic cycles, clarifying the theoretical boundaries of innovation as a necessary and inadequate condition, analysing realistic paths and supporting systems of innovation-driven growth in the context of the technological revolution and industrial change practices, and providing theoretical support and practical reference for a new era of science, technology and innovation leading to the development of new qualitative productivity and achieving high-quality sustained economic growth。
Keywords: economic growth; innovation driven; endogenous growth theory; full factor productivity; introduction to new qualitative productivity
Economic growth is at the heart of macroeconomics and the fundamental basis for national development and the improvement of livelihoods. Throughout the history of human economic development, there has been a fundamental change in the dynamics of economic growth, from the low pace of traditional agricultural societies to the sustained leaps after the industrial revolution, from factor-driven to technological advances. While traditional growth patterns rely on the expansion of physical factors such as labour, capital and land, which can be rapidly scaled up in the early stages of development, long-term growth is bound by the declining pattern of marginal pay, and will inevitably suffer from ceilings and stagnation or slow growth。
Contemporary economics research and country practice have repeatedly demonstrated that innovation alone can break down the constraints and efficiency bottlenecks and provide an inexhaustible impetus for sustained economic growth. Robert soro's neoclassical growth model reveals that technological progress is the only source of long-term per capita growth; that paul rommel's endogenous growth theory has internalized knowledge and innovation, pointing out that knowledge spills and scale increases are central mechanisms for sustained growth; and that scholars such as agion have refined innovative growth theories with “creative destruction” to further establish the centrality of innovation in modern economic growth. In 2025, the nobel prize for economics was awarded to mokill, aguión and hoyt, in recognition of the classic theme of “technological innovation as a necessary condition for sustained growth” with the highest academic honour。
At present, our economy is moving towards a high-quality stage of development, facing triple pressures of shrinking demand, supply shocks and expected weakening, with reduced conventional growth dynamics and the development of new qualitative productivity as strategic options. New quality productivity, underpinned by innovation and supported by high technology, is essentially an advanced quality of productivity driven by innovation. In this context, the systematic demonstration of the intrinsic relationship between innovation and sustained economic growth and the clarification of theoretical logic, dynamics and pathways to achievement have important theoretical value and relevance. This paper is based on classical theory, which combines the characteristics of the time with a systematic analysis of “innovation as a necessary condition for sustained economic growth” and provides the intellectual underpinnings for driving innovation-driven development strategies。
I. Theoretical basis for innovation to drive economic growth
(i) the neoclassical growth model: technological advances overcoming growth thresholds
The neoclassical growth theory, represented by soro, has built up a framework for growth with three elements: capital, labour and technological progress. The model points out that in the absence of technological progress, the decline in marginal returns on capital leads to a stabilization of per capita output and the eventual stabilization of the economy without long-term growth. This conclusion reveals deeply the unsustainability of the traditional factor-driven model。
The neoclassical growth model considers technological progress to be an external variable, and although no source of technology is explained, the core conclusion is clear: no economy can break through growth stability and long-term sustained growth without technological progress and innovation. This theory provides the basis for follow-up research on innovation growth and serves as a theoretical starting point for countries to focus on sti。
(ii) the theory of endogenous growth: innovation, biochemicals and increasing pay for scale
In the 1980s, scholars such as rommel and lucas broke the limits of neoclassical models and created endogenous growth theories. The theory considers knowledge, innovation and human capital as endogenous factors of production, and considers knowledge to be non-competitive and positive externalities that can generate economies of scale multipliers to offset the decline in marginal pay for capital and achieve sustained growth。
The core contribution of endogenous growth theory is:
1. Innovation is a natural variable within the economy, determined by enterprise-by-business behaviour, r & d inputs, knowledge accumulation rather than external shocks
2. Knowledge spillovers spread innovation across industries and regions, leading to improved overall productivity
3. R & d inputs and innovation activities are developing a positive cycle, creating new technologies, products and markets on a continuous basis and driving the economic spiral。
This theory fundamentally establishes the centrality of innovation in the growth system and provides a direct theoretical basis for innovation-driven development strategies。
(iii) theory of pumpett's innovation: creative destruction and growth evolution
For the first time in the economic development theory, schumpeter systematically introduced innovation theory, defining innovation as a regrouping of factors of production, including new products, new technologies, new markets, new sources of supply and new forms of organization. He introduced the core concept of “creative destruction”, arguing that innovation continued to phase out old technologies, enterprises and industries, generating new modes of production and economic structures, and driving the economy from circular to development。
From the perspective of pumpeter, economic growth is not a smooth quantitative expansion, but rather a structural change and cyclical leap from innovation, where entrepreneurs are the organizers and promoters of innovation and market competition is the screening mechanism for innovation. This theory reveals the dynamic, destructive and revolutionary nature of innovation-driven growth and provides an important tool for understanding industrial change and the technological revolution。
Three theories point to the same conclusion from different dimensions: innovation is necessary to break traditional growth constraints and achieve long-term sustained growth, without which there can be no sustained economic growth in the modern sense。
Ii. Core mechanisms for innovation-driven sustained economic growth
(i) overcoming resource scarcity and marginal pay erosion
Traditional growth depends on an expansion in the quantity of factor inputs, while resource scarcity and marginal pay decline are unbreakable natural patterns. After capital, labour and land inputs have reached a certain scale, the output per unit of inputs has continued to decline and the growth drive has been gradually exhausted。
Innovation achieves an output efficiency index upgrade through technological advances, process optimization and management change without adding factor inputs or a small increase in inputs. For example, modern agricultural technologies have significantly increased the production of grains per unit area, smart manufacturing has pushed per capita production beyond the limits of traditional plants, and digital technology has pushed the supply of services beyond time and space constraints. Innovations replace the material element of knowledge with efficiency alternatives to scale expansion, overcoming resource bottlenecks and breaking the growth ceiling。
(ii) improved full factor productivity leading to intensive growth
Full factor productivity (tfp) is a core indicator of technological progress, management efficiency, resource allocation efficiency, surplus growth after the deduction of physical inputs such as capital, labour, and a central indicator of high-quality growth。
Innovation increases full factor productivity through three pathways:
1. Technological innovation directly increases production efficiency and reduces production costs
2. Institutional innovations to optimize resource allocation and reduce transaction costs and internal consumption
3. Organizational innovation improves management efficiency and stimulates factor dynamism。
In a modern economic system, the contribution of tfp growth to economic growth is a key criterion in judging the shift from a broad to a concentrated economy. Innovation provides efficiency support for long-term growth by continuously increasing full factor productivity and driving the growth paradigm from quantitative expansion to qualitative improvement。
(iii) creation of new demand and industries and new opportunities for growth
Innovation not only improves the efficiency of existing industries, but also creates subversive products and new markets, creating new growth poles. From steam engines, electricity, information technology to artificial intelligence, biomedicine, and new energy sources, each major innovation creates new industries, new business patterns and new patterns of demand at large。
New qualitative forms of industry, such as the digital economy, the platform economy, the low-altitude economy and future industries, are all sources of innovation. These industries, characterized by high value added, high technological density and high growth potential, are central engines of economic growth. Innovations generate demand through supply, stimulate industrial border expansion, and shift economic growth from stock competition to incremental creation and sustainable expansion。
(iv) optimizing industrial structures for high-quality transformational upgrading
Innovation drives the shift of factors of production from inefficient, low-value-added industries to efficient, high-value-added industries, promoting high-end, intelligent and greening industrial structures. Traditional industries achieve efficiency gains through technological adaptation, new industries expand in scale through innovation breakthroughs, and backward production can be eliminated from the market in creative destruction。
Industrial structural upgrading is an important engine of economic growth, and innovation is a fundamental driver of industrial upgrading. Without technological and modal innovation, industrial upgrading can only be at the scale of expansion without qualitative leaps. Innovation-driven industrial upgrading has enabled economies to climb up value chains in the global division of labour, enhancing core competitiveness and risk resistance。
(v) longer economic cycles to withstand volatility and recession
The economy operates cyclically, with traditional cycles dominated by fluctuations in demand and capital, while major technological innovations can generate new technologies-economic paradigms that generate decades-long waves of growth, iron out short-term fluctuations and resist recessionary risks。
Three industrial revolutions in history have been marked by subversive innovations that have led to long-term economic prosperity. At present, a new wave of technological revolutions and industrial transformations, represented by artificial intelligence, new energy sources, quantum information, bio-manufacturing, is generating new growth waves. Innovation allows economies to maintain a long-term advantage in global competition by continuously providing new dynamics, prolonging growth cycles and increasing economic resilience。
Iii. Theoretical clarification: innovation is necessary rather than sufficient
“innovation is a necessary condition for sustained economic growth”, meaning that no innovation is necessary for sustained growth, but innovation does not necessarily automatically lead to growth. The transformation of innovation into real growth requires a well-developed supporting system and institutional environment, which is a key boundary that must be clarified by theory and practice。
(i) intellectual property protection regimes
Intellectual property rights (iprs) are the basis of innovation property rights, and the lack of effective protection will lead to the imitation of innovation outcomes free of charge, the failure of enterprises to obtain a reasonable return on their r & d inputs and the depletion of innovation incentives. An improved system of intellectual property protection can provide incentives for companies and research institutions to invest in research and development on a continuous basis, creating a virtuous cycle of innovation-benefit-renewal innovation。
(ii) market-based risk sharing and financial support systems
Innovation is characterized by high input, high risk, long cycle, and requires risk investment, capital markets and instruments such as science and technology finance to share risk and finance. Developed risk investment systems can screen for high-quality innovation projects, support the transformation of scientific and technological outcomes and drive innovation from laboratories to production lines. In the absence of financial support, innovation can only remain at the technological level and cannot be translated into industrial dynamism。
(iii) high-quality human capital systems
The creation, application and diffusion of innovation depend on highly qualified personnel. Basic research talent has broken through core technologies, applied technological talent to drive the transformation of results and skilled talent to support industry. Together, the education system, talent development, and talent-induction mechanisms underpin human capital and are central vehicles for transforming innovation into growth。
(iv) fair competition market environment
Market competition is an innovative filter and accelerator, and a level playing field can drive firms to innovate, eliminate inefficient supplies and stimulate market dynamism. Monopolies and local protection inhibit innovation and distort resource allocation. A unified, open and competitive market system makes innovation efficiency the core criterion for the survival and development of enterprises。
(v) institutional and cultural environment for inclusive innovation
Innovation is uncertain and mistested and requires institutions and cultures that include failures and encourage exploration. Government regulation, policy support and the social climate together form the ecological fabric of innovation, reduce the cost of innovation systems and stimulate innovation and creativity throughout society。
In sum, innovation is a necessary and insufficient condition for sustained growth, and technological advantages can be translated into industrial advantages, growth advantages and development advantages only if a sound system of innovative ecology and institutions is built。
Iv. A practical path to innovation-driven sustained economic growth
(i) strengthening basic research and building the foundations of innovation
Basic research is the general switch on science, technology and innovation and the source of breakthroughs in key core technologies to achieve original innovation. Long-term growth depends on subversive innovation, which stems from fundamental research breakthroughs. Basic research inputs should be increased to optimize the scientific landscape, support free exploration and target-oriented research by universities and research institutes, address the underlying theoretical issues behind the “crawling” technology and provide a source of sustainable innovation。
(ii) strengthening corporate ownership and promoting deeper integration in production studies
Enterprises are the subjects of innovation decision-making, r & d inputs, results transformation and market applications. Policy incentives should be improved to induce enterprises to increase their r & d inputs, foster leading and specialized new enterprises in science and technology, build integrated innovation consortia for productive research and development, promote the rapid transformation of innovation into real productivity and reduce the transition cycle of technology to industry and products to markets。
(iii) development of new qualitative productivity for innovation leading to industrial upgrading
New quality productivity is an innovation-driven advanced productivity and a central vehicle for sustained growth in the new era. The deeper integration of sti with industrial innovation should be promoted around the focus areas of the digital economy, green low-carbon, life-health, space-based science and technology, and future industries, upgrading traditional industries, nurturing new and emerging industries, looking ahead to future industries, and developing modern industrial systems that are innovative and synergistic。
(iv) innovative ecology and institutional supply optimization
To deepen the reform of the science and technology system and to improve the systems of intellectual property protection, evaluation of scientific and technological results, management of scientific research funds, motivation of talent, etc., and remove institutional barriers. Build a science and technology financial system, develop venture capital, science and technology credit, intellectual property pledge financing, and provide full-cycle financial support for innovation. Creating a social and cultural culture that encourages innovation and tolerance for failure and stimulates the potential for innovation throughout society。
(v) continued openness to innovation and integration into global innovation networks
In the context of globalization, innovation is open and synergistic. High levels of openness and proactive integration into global innovation networks should be maintained, introduced in combination with outreach, attracting high-level global innovation elements, participating in international science and technology cooperation and standard-setting, and enhancing autonomous innovation capabilities in open cooperation to drive sustained growth with a global perspective。
Conclusions and outlook
The evolution of economic growth theory, together with human economic development practices, has proven that innovation is a necessary condition for sustained economic growth. Today, when the traditional factor-driven model faces bottlenecks, this proposition is more relevant and of contemporary value. Innovation provides an inexhaustible impetus for long-term development by overcoming scarcity of resources, increasing full factor productivity, creating new industries for new demand, optimizing industrial structures and extending the economic cycle. At the same time, it must be made clear that innovation is a necessary and insufficient condition, and only with good intellectual property, financial support, human capital, market environment and innovation ecology can innovation be translated into growth dynamics。
At a time when the world has seen no major change in the past century and a new scientific and technological revolution and industrial transformation have advanced, my country is at a critical stage in transforming its approach to development, optimizing its economic structure and transforming its growth drive. To promote high-quality development and modernize china, innovation-driven development strategies must be firmly pursued, science, technology and innovation must be placed at the heart of the country's development agenda, initial innovation bottlenecks must be broken, industrial innovation should be used as an incentive, the ecology should be secured by institutional innovation, the development of new qualitative productivity should be accelerated and the economy should achieve qualitative and efficient growth。
From theory to practice, from history to the future, innovation has always been the soul and the core of economic growth. Insisting on the centrality of innovation in modernizing and building the global picture, continuously improving the innovation system, upgrading innovation capabilities and unleashing innovation dynamism will make it possible to break through growth constraints and achieve sustained and healthy economic growth over the long term, winning the initiative, the advantage and the future in global competition. (15 february 2026)
