Abstract Knowledge-based economies use knowledge as an input of production to
produce knowledge-intensive products and services. In such economies, a firm’s growth
crucially depends on knowledge accumulation, technical change and the resulting
innovation activities. To achieve sustained growth, a firm must keep on innovating. A
firm’s core competence and its refinement and development over time play a crucial role
in a firm’s innovation activities and its growth. In this paper, a conceptual framework of
a firm’s innovation and growth in knowledge-based economy is presented. This framework
is based on a firm’s core competence and its development over time within a firms’
cluster. This model is empirically estimated and evaluated, in a pilot study, via a data set
from a manufacturing cluster of 128 firms operating in the North East England. The
empirical results provide some support for the proposed framework. In particular, it is
found that the conditional probability that a firm undertakes R&D activity to innovate in
such a cluster of firms is over 70 %.
Keywords Knowledge economy . Core competence . R&D activities . Cluster
formation . Innovation polic
