Knowledge Capital and the “New Economy”

According to its proponents, the "new economy" is associated with sustainable growth, increased demand for labour and zero inflation. On the micro-level, this avenue into the future is propelled by knowledge capital, flexibility and new ways of organizing production, such as clusters and networks. Progress in information technology, together with massive deregulation on the national and the international levels, have been credited with setting this development into motion. The concept of the "new economy" has been rapidly embraced by politicians, as it seems to offer a way out of the traditional trade-off between unemployment and wage inflation. However, empirical evidence regarding the microeconomic mechanisms of the "new economy" is scarce. This work intends to narrow this gap by empirically analyzing the composition of knowledge capital and how knowledge capital is distributed across firms of different size. Moreover, the impact of knowledge capital on firms' profitability and international competitiveness is also examined. Finally, we compare cluster dynamics and the institutional set-up in Europe and the US, with the purpose of identifying regulations that seem to hinder a conducive environment for expanding and dynamic European clusters.