Structural Change and Economic Dynamics 51 (2019) 291–300

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Structural Change and Economic Dynamics

journal homepage: www.elsevier.com/locate/sced

The knowledge economy: Key to sustainable development?

Lukas Rezny, James Buchanan White, Petra Maresova ∗
University of Hradec Králové, Faculty of Informatics and Management, Rokitanského 62, 500 03, Hradec Králové III, Czech Republic

a r t i c l e i n f o a b s t r a c t

Article history: A perfect storm of resource depletion and environmental degradation looms as the world’s biggest
Received 23 May 2018 economies are plagued by low or even negative growth rates. The knowledge economy is often presented
Received in revised form 5 December 2018 as a way of a radical societal transformation to achieve both higher and sustainable economic growth,
Accepted 9 February 2019
and as a way out of the predicament of increasing resource scarcity and climate disruption. This paper
Available online 11 February 2019
explores the relationship between the knowledge economy index and consecutive economic growth
rates along with various indicators of resource consumption to determine the relative success of this sup-
Keywords:
posedly unique mode of economic development. Our findings show the failure of advanced knowledge
Knowledge economy
Sustainability
economies to grow in the post-2008 period. We have not found any evidence of higher resource efficiency
Economic growth of advanced knowledge economies when their resource consumption is assessed using the material foot-
Non-renewable natural resource print. Through comparison of coal and oil consumption with changes in knowledge economy rankings
consumption from 1995 to 2012, we found no regular pattern of diminishing reliance on these increasingly scarce and
expensive natural resources by successfully developing knowledge economies.
© 2019 Elsevier B.V. All rights reserved.

1. Introduction
UK’s Chief Scientific Advisor John Beddington used the term
‘perfect storm’ to describe to an extensive list of converging envi-
ronmental problems, above all climate change and increasing
scarcity of key energy resources (Sample, 2009). After many years
as a topic in fringe and alternative media, the term ‘Peak oil’,
describing an irreversible decline of conventional oil production,
entered mainstream debates, during a time when the price of oil
almost quadrupled (Murray and King, 2012; The Economist, 2012;
Höök et al., 2009).1 Other fossil fuels such as coal also face immi-
nent availability problems (Patzek and Croft, 2010). Non-energy
minerals like copper, zinc, nickel are being extracted in rapidly
diminishing ore grades, requiring more and more energy in the
extraction process, further worsening humanity’s pollution and
energy availability problems (Bardi, 2014). These problems have
serious economic consequences. James D. Hamilton, examining the
relationship between oil price spikes and recessions in the USA
noted (Hamilton, 2011): “The correlation between oil shocks and
economic recessions appears to be too strong to be just a coinci-
dence”. Some authors also argued that oil supply limits appear to
∗ Corresponding author.
E-mail addresses: lukas.rezny@uhk.cz (L. Rezny), james.white@uhk.cz
(J.B. White), petra.maresova@uhk.cz (P. Maresova).
1
During the period of 1990-99, the average price of oil was 28,44$ while the
average price in the year 2012 was 111, 67$ [Brent prices in constant 2012 US dollars]
(Statistical Review of world Energy, 2013).
be one of the causes (Galbraith, 2014) or even the primary cause of
the 2008–09 recession (Tverberg, 2012), while others went further
and announced the end of economic growth (Heinberg, The End of
Growth, 2011).
These worrisome trends led some as to argue that the possi-
bility of collapse of human society is indeed realistic (Ehrlich and
Ehrlich, 2013; Tainter, 1990). Curiously, leading figures in the field
of economics were not amongst them, despite unpleasant cur-
rent economic trends, when major developed countries are fighting
with high unemployment and extremely slow or no growth. James
Kenneth Galbraith presents a notable exception. He argued that
this condition is the new normal, calling for a modified mode of
economic development, sketching out the ‘slow-growth model’,
which should represent a qualitatively different form of capitalism
(Galbraith, 2014). On the contrary, Paul Krugman announced that
saving the planet would be cheap, even free (Krugman, 2014). Par-
ticularly interesting is his following note (Krugman, 2014): “. . .they
don’t understand what economic growth means. They think of it as a
crude, physical thing, a matter simply of producing more stuff, and
don’t take into account the many choices — about what to consume,
about which technologies to use”. This change in production from
‘crude, physical things’ and ‘simply producing more stuff’ to intan-
gible assets lies at the heart of the knowledge economy concept,
which has been discussed as a model for a sustainable development
(Johnston, 2001).
An economy where knowledge is the main source of economic
growth suggests, according to the World Bank (The World Bank,
2007a, b), that countries should invest in education, innovation,

https://doi.org/10.1016/j.strueco.2019.02.003
0954-349X/© 2019 Elsevier B.V. All rights reserved.
292 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300
information and communication technologies as well as establish
a good institutional environment – and that investment should
lead to an increase in the use and creation of knowledge in the
economic process and consequently to higher and sustained eco-
nomic growth, while simultaneously meeting targets of sustainable
development. The promise of the knowledge economy – higher
reliance on knowledge instead of natural resources in order to
achieve economic growth – is critical and desirable when faced with
the aforementioned ‘perfect storm’ of resource depletion, climate
change and demographic transition.
The purpose of this paper is to assess if the knowledge economy
delivers on its promise as a proposed means of achieving sustain-
able economic growth. Is the knowledge economy really a goal
worth pursuing, and does it represent a feasible way to transition
to a sustainable future?
We should clarify here what exactly we mean by a sustainable
economy, or sustainable economic development, as the term sus-
tainability has become widely overused and potentially vacuous
word. Richard Heinberg clarified the term, postulating five axioms
of sustainability (Heinberg, 2007). For the current study, mainly
his second and fourth axioms are important. The second axiom
states that population growth and/or growth in the rates of con-
sumption of resources cannot be sustained. The fourth builds on
the previous one, stating that for an economy to be sustainable, its
use of non-renewable resources must proceed at a declining rate,
and the rate of decline must be greater than or equal to the rate of
depletion. For an economy to be considered sustainable, it must also
fulfill the requirements of the remaining three axioms. However,
this study questions if there is any evidence that the knowledge
economy actually meets the requirements of the two aforemen-
tioned axioms. Only after proving that can the remaining three be
addressed.
2. The knowledge economy
2.1. Evolution of the concept in the theory of economic growth
The Evolution of the knowledge economy can be traced far back
in economic theory. Solow in his work A contribution to the the-
ory of economic growth identified technological progress as the
sole source of economic growth in the long term (Solow, 1956).
Luigi Pasinetti in his book Structural Change and Economic Growth
stressed the importance of exogenous learning activity which
drives technological change and consequent structural change,
resulting in a productivity increases in affected economic sectors
which are then the primary drivers of economic growth (Pasinetti,
1983).
But in the aforementioned models, technological progress is an
exogenous, steadily growing variable, unexplained by the models.
Thus a critical variable remains poorly understood.
That is the aspect of the model which endogenous growth the-
ories aimed to fix. Romer built his work around a model somewhat
similar to the one introduced by Solow, but he concretized the mys-
terious variable of technological progress, a similar model with
almost the same set of implications was as developed by Lucas
(Lucas, 1988). According to Romer’s model, technology improves
thanks to the increasing stock of human knowledge, which is in the
model treated like nonrival, partially excludable good. Knowledge
in his model can grow or be accumulated without any bounds, in
contrast with human capital, which cannot, limited by the finite
amount of years of schooling and job-related training (Romer,
1990). Technological change in the model arises from intentional
investment decisions made by profit-maximizing agents investing
in the creation of new knowledge, thus becoming an endogenous
variable.
One of the conclusions of the model is that to speed up the rate of
economic growth, it is necessary to employ more human capital in
research. Thus (according to the model) an economy with a higher
stock of human capital employed in research should experience
faster rates of economic growth (Romer, 1990). Also, in Romer’s
model it is possible for the economy to grow without increases in
employed labor, utilized capital or natural resources. The whole
economy can grow thanks to the accumulating stock of knowledge
alone, because it does not suffer from diminishing returns and its
growth is assumed to be unbounded. That is indeed a critical and
daring proposition related to the sustainability of economic growth
and the whole economy in question.
The endogenous growth theory solved the problem with the
exogenous driver of economic growth and obviously served as a
theoretical justification for the concept of the knowledge economy
and related policies. But as Mankiw noted (Mankiw, 1995): “Models
that emphasize unmeasurable variables such as knowledge are hard
to bring to the data” thus the model remains highly theoretical.
2.2. Definitions
The preceding theoretical underpinnings of the knowledge
economy outline the meaning of the term, so we will mention only
two of the most common definitions to avoid any remaining con-
fusion. OECD defines knowledge-based economies as: “economies
which are directly based on the production, distribution and use of
knowledge and information” (OECD, 1996). Powell and Snellman use
a longer definition, and according to them, the knowledge econ-
omy is based on knowledge-intensive activities that contribute to
an accelerated pace of technical and scientific advance, as well as
rapid obsolescence. The key component of a knowledge economy
is a greater reliance on intellectual capabilities than on physical
inputs or natural resources (Powell and Snellman, 2004). The point
of diminished reliance on non-renewable natural resources of such
an economy is repeated in the literature (Johnston, 2001).
2.3. Measurement
Measuring knowledge and the role it plays in economic devel-
opment is an incredibly complicated task. OECD compiles its
comprehensive science, technology and industry scoreboard which
has in its last edition the subtitle innovation for growth (OECD,
2013). Progress in various areas of the knowledge economy is doc-
umented with a breathtaking set of 260 variables. Unfortunately,
most of these variables are of little or no use for our current study.
Some of the variables are only experimental or not internationally
comparable. In other cases, data are available only for the last one
or two years. Since the report is oriented on the OECD countries,
coverage of other nations is also sparse. For these reasons, we have
not used any indicators presented in the OECD report, even when
some of them could be useful in the context of our present study.
The World Bank provides a better variant. Its Knowledge Econ-
omy Index (KEI) covers a time span of 17 years for roughly 140
countries (coverage varies slightly from year to year). The World
Bank defines KEI as (The World Bank, 2008):”a broad measure of
the overall level of preparedness of a country or region for the knowl-
edge economy.” The knowledge assessment methodology divides
variables into four categories, or pillars. They are an economic and
institutional regime which provides incentives for use of knowl-
edge, provides an environment that encourages entrepreneurs,
an education system that encourages literacy and familiarity
with information technology, and information and communication
infrastructure which facilitates communication and processing of
information and an innovation system, which includes the com-
panies, universities, think tanks and similar organizations which
do research and contribute to the global stock of knowledge and
 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300
Fig. 1. KEI and GDP per capita based on purchasing power parity (PPP), 2012. Number of countries, n = 134, data sources: (The World Bank, 2012a, 2013).
Table 1
The four pillars of the knowledge economy and respective KEI indicators (World
Bank, 2008).
Pillar Indicator
Tariff and non-tariff barriers to trade
Economic and
Regulatory quality
institutional regime
Rule of law
Adult Literacy rate
Education and skill of
Gross secondary enrollment rate
population
Gross Tertiary enrollment rate
Telephones per 1000 people
Information
Computers per 1000 people
infrastructure
Internet Users per 1.000 people
Royalty Payments and receipts, US$ per person
Innovation system Technical journal articles per million people
Patents granted to nationals by the U.S. Patent
and Trademark Office per million people
technology. The presence of these conditions and institutions are
taken as the necessary foundation for an economy that creates
value based more on information and services than on physical
goods and tangible products.
The exact allocation of concrete variables into distinct knowl-
edge economy pillars which together form KEI is depicted in the
Table 1.
Indicators from the three latter pillars can be easily understood,
but variables from the first pillar, the economic and institutional
regime, might require additional commentary. Tariff and non-tariff
barriers is a score based on the Heritage foundation’s Trade free-
dom score. Regulatory quality refers to perceptions of the ability
of the government to formulate and implement sound policies and
regulations that permit and promote private sector development.
Rule of law captures perceptions of the extent to which agents have
confidence in and abide by the rules of society, and in particular the
quality of contract enforcement, property rights, the police, and the
courts, as well as the likelihood of crime and violence.
Countries are compared on the basis of normalized scores and
not absolute values. Every variable for a given country receives
a rank in the whole dataset (130–140 countries, data availability
varies in individual years) based on comparison with the same vari-
ables for other countries. Therefore, a country ranked 1 performs
the best among all countries in the sample on a particular variable
so it has the highest score. For each country and variable, the num-
ber of countries that rank below it (Nw) is calculated. The formula
which is then used to normalize the scores according to the coun-
try’s ranking and in relation to the total number of countries in the
sample (Nc) is stated below (World Bank, p.53).
293
Nw
Normalized score = 10 ( ) (1)
NC
Thus the normalized score from 0 to 10 is assigned for every vari-
able and country is based on its relative performance compared to
other countries. The highest score reachable is 10 with 0 reserved
for the worst performing. Scores for the entire KE pillars are calcu-
lated as simple averages of triplets of variables mentioned on the
previous page. The whole KEI then is also calculated as a simple
average of indexes for each pillar.
3. Results
3.1. Economic performance of knowledge economies
The first part of our analysis focuses on the question of economic
performance (defined as per capita GDP) which is sometimes also
perceived as a level of attained wealth related to KEI.
Since the KEI reflects such a things as country’s Information and
Communications Technology (ICT) infrastructure, tertiary enroll-
ment, computers per thousand people, amount of researchers in
R&D etc., it is not surprising that KEI and GDP are closely related
- poor countries simply cannot afford such a luxuries in western
quantity or quality. The relationship between GDP and KEI for the
year 2012 is plotted in the graph below.
We can see that the relationship is well captured by an expo-
nential function, as is displayed by a high index of determination,
R2 , for the particular function in the graph above. But some points
are clearly very distant from the estimated function. Qatar presents
the biggest extreme, having per capita GDP PPP of 71 931 dollars
with KEI of just 5, 84, thus being only the 52nd country in KEI
rankings for the year 2012. Qatar reached this position thanks to
its natural endowment, exporting considerable amounts of oil and
natural gas, which together comprise more than 50% of its GDP (The
Heritage Foundation, 2014). Countries with similar models of eco-
nomic development are the United Arab Emirates, Saudi Arabia and
Norway, which are also positioned closer to the left upper corner
in Fig. 1. Notable also is Botswana with a relatively high per capita
GDP PPP of 14 109 dollars with KEI of only 4, 31, a position reached
mainly thanks to its diamond exports. Another extreme point is
Luxembourg, which has a small population and an economy which
depends on a large number of foreign workers (almost half of the
workforce), who help to skew GDP up, as they are not Luxembourg
citizens (Jobs.lu, 2012). On the other side, countries which are posi-
tioned closer to the lower right corner, below the curve, are mainly
comprised of former Soviet bloc countries like Estonia, Romania
294 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300
Fig. 2. Annual GDP growth averages and KEI1995/2007 intervals. Number of countries, n = 141 (1996–2007) and n = 131 (2007–2013), data source: (The World Bank, 2012b;
World Bank, 2014).
and Ukraine, who are still in the process of catching-up with more
developed nations.
We have also analyzed data for the years 1995, 2000, 2007 and
the year 2012 which you can see above. One observation from this
analysis is the fact that with each passing year, the data better fit the
exponential function, reaching a maximum in the year 2012. There-
fore, it should be noted that the likelihood that any given country
will divert from this exponential trend of reaching high KEI values
with relatively low per capita GPD is declining in the data.
In Fig. 2 we see a summary of growth rates for two different peri-
ods (pre-crisis and crisis), countries are divided into intervals based
on their KEI values. In the first period, 1996–2007 (black lines in the
graph), there is no clear pattern. There is actually a very small neg-
ative correlation between average GDP growth rates and KEI scores
of individual countries in the pre-crisis period (r=−0,02; p = 0,80)
but is not significant.
The situation changes when we examine the period of
2008–2013. It turns out that the countries with higher KEI values
were hardest hit and there is a visible pattern of decreasing growth
rates towards the group of countries with the highest KEI scores
in Fig. 2. Growth rates of groups of countries with KEI of 7 and
higher entered a freefall, being negative. For this period, KEI values
and average GDP growth rates are negatively correlated (r= −0,49;
p < 0,05) and significant this time, which corresponds to the clear
trend observed in Fig. 2. See the Table 2 below for numerical values
and further details.
In both observed periods, countries with the lowest KEI had the
highest growth rates (but as a group, they were insignificant). Also,
the group of countries in the KEI range from 4 to 5 performed very
well in both periods. Very few advanced knowledge economies
succeeded in growing robustly in the crisis period. The group of
countries with KEI2007 scores above 8 and GDP growth rates above
1% has only three members - Germany, Hong Kong and Israel,
demonstrating an almost total failure of economic development
of advanced knowledge economies.
3.2. Natural resource consumption of knowledge economies
To assess natural resource consumption of Knowledge
Economies, we used the Material Footprint (MF) as an indicator
over the widely used Direct Material Consumption (DMC).
The DMC is an aggregate measure of resource consumption
defined as domestic extraction (DE) plus all physical imports minus
all physical exports. Domestic extraction is the annual quantity of
raw materials extracted from the domestic territory for further
processing through economic activities. The traded goods (phys-
ical exports and imports as stated above) are measured as their
simple mass weight equivalents when crossing the border. Indi-
rect material extraction and consumption (resp. their Raw Material
Equivalents) necessary to produce the traded goods are not consid-
ered in DMC (Moll et al., 2012). This shortcoming is the reason why
we did not include this indicator in our analysis.
The Material Footprint (MF) indicator should address this prob-
lem. MF is a measure of the total amount of primary materials
required to satisfy a country’s own final demand. MF does not
record the actual physical movement of materials within and
among countries but, instead, enumerates the link between the
beginning of a production chain (where raw materials are extracted
from the natural environment) and its end (where a product or ser-
vice is consumed) (Wiedmann et al., 2015). Authors of the study
Material footprint of the nations (Wiedmann et al., 2015) calcu-
lated the raw material equivalents (RMEs) of economic trade flows
between 186 countries by linking national material flow accounts
with a global multiregional input-output model. Adding the RME of
imports to the domestic extraction of the raw materials of a coun-
try and subtracting the RME of exports results in the country’s MF.
Thus DE volumes are merely reallocated from production to con-
sumption in a mutually exclusive and collectively comprehensive
way. This method obviously has its limitations, but it is still an
improvement compared to DMC. For further details, see support-
ing information text of previously mentioned study by Wiedmann
et al. (2015).
3.3. Material footprint
Fig. 3 depicts the relationship between KEI2008 and per capita MF
for the year 2008. MF per capita grows with KEI2008 . It is clear from
Fig. 3 that there is no country with KEI2008 above 7 points while
consuming less than 15 tons of MF per capita. The threshold moves
again to 24 tons of MF for countries with KEI2008 of 9 points or more.
But we have to admit that this result is not that very surprising
after revealing the close relationship of KEI with per capita GDP in
purchasing power parities in Fig. 1.
The relationship between the two variables in Fig. 3 seems to be
exponential, but that is mainly caused by a few extremes, marked
in the figure above. These are mainly the same countries which
 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300 295

Table 2
Annual GDP growth averages and KEI1995/2007 intervals. Data source: (The World Bank, 2012b; World Bank, 2014).

1996 – 2007 period 2008 – 2013 period

KEI 1995/2007 n - number of countries GDP growth standard n - number of countries GDP growth standard
interval in respective interval averages deviation in respective interval averages deviation

0–1 0 – – 5 4,2 3,47

1–2 4 4,85 1,63 19 2,52 2,05
2–3 23 2,80 1,91 10 1,46 1,82
3–4 16 2,24 2,67 20 2,96 1,63
4–5 21 4,39 3,61 15 4,08 2,28
5–6 27 3,05 2,43 19 1,09 2,48
6–7 16 3,44 2,77 8 1,42 2,54
7–8 9 3,79 1,84 13 −0,21 2,07
8–9 14 2,69 1,30 19 −0,13 1,13
9 – 10 11 2,37 0,59 5 −0,67 0,58

Fig. 3. KEI and MF per capita, year 2008. Number of countries, n = 133, data source: (Wiedmann et al., 2015; The World Bank, 2008).

were also outstanding in Fig. 1 and the same explanations still
hold. Countries from this group are not very populous, all of them
having a population below 7 million people and are also relatively
small geographically. At the same time, these countries are very
rich in GDP per capita terms and the majority of MF comes from
imports. The average for this group of countries (7 countries total,
they are directly followed by Greece in MF rankings, which has MF
of 35 tonnes per capita) is a population of 2,5 million people and
GDP per capita in purchasing power parity of 40 thousand constant
2005 international dollars. These are parameters which allow them
to deviate so sharply from the trend outlined in Fig. 3.
There still can be an argument that even when those advanced
knowledge economies have bigger MF per capita, they can still be
more resource efficient (resource efficiency defined as GDP/MF),
which might be a good sign and reason for hope of further possible
future development. Fig. 4 sheds some light on that argument.
Unfortunately, when we compare resource efficiency with
KEI2008 , there is no clear pattern, as can be seen in Fig. 4. The
correlation between resource efficiency and KEI2008 is r = -0,0078,
thus there is no clear relationship between KEI and resource effi-
ciency, advanced KE’s do not seem to be more resource efficient
than their counterparts with low KEI values. The country with fifth
highest resource efficiency is Russia with 1,84 $/kg, beating the
most advanced knowledge economy for the year 2008, Denmark,
with its 1,25 $/kg by a large margin while having KEI2008 of only
5,4.
These results, while significant, are not very satisfactory, as they
describe only one year. Dynamic movement of MF in comparison
with GDP should shed more light on the issue of resource con-
sumption of KE’s. Authors of the study Material footprint of the
nations documented that in the period 1990–2008, MF (total mate-
rial footprint for the whole countries, not in per capita measures)
was continually growing for most countries, namely USA, Japan,
UK, Australia, China, Brazil, India and also for the whole groups
of countries like EU-27 and OECD (Wiedmann et al., 2015, pg. 3).
Since the most advanced knowledge economies are also members
of these groups, there seems to be little progress towards sustain-
able development. Indeed, quite the opposite is true. In the next
section, the focus will move to the dynamics of consumption of oil
and coal, as those are the resources facing immediate threat of acute
depletion, connected with globally diminishing extracted amounts
(Höök et al., 2009; Bardi, 2014), or as in the case of coal, peaking of
net energy obtained from its extraction (Patzek and Croft, 2010).
Fig. 5 depicts the relationship, or lack of thereof, in our
case, between observed changes in oil consumption and progress
towards the knowledge economy (measured a change in KEI rank-
296 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300

Fig. 4. KEI and resource efficiency (GDP/MF), year 2008. Number of countries, n = 91, data source: (Wiedmann et al., 2015; The World Bank, 2008).

Fig. 5. Relative changes in oil consumption and KEI rankings. Number of countries, n = 65, Source of data: (The World Bank, 2012b; Statistical Review of world Energy, 2013).

ings) of selected states in the period of 1995–2012. In this group
of available countries (constrained by data availability on oil con-
sumption), the three most successful countries were: Saudi Arabia
(gained 28 positions), China (gained 16 positions) and Vietnam
(gained 13 positions). Those countries also massively increased
their oil consumption by (in the same order) 117, 202 and 247
percent. But there are also countries like Germany and Hungary,
who gained 6 positions in KEI rankings, but at the same time, they
reduced their oil consumption roughly by one fifth.
These examples illustrate a lack of relationship between changes
in oil consumption and changes in KEI rankings. Correlation
between these two variables is r = 0,17, but it is not significant as
p = 0,169, which verifies our previous observations.
The relationship between changes in coal consumption and a
change in KEI rankings is depicted in Fig. 6. We can see that the
situation is noticeably similar to the previous analysis done for oil
consumption. The first two positions are occupied by China and
Vietnam, which increased their coal consumption by 182 and 206
percent. It is interesting to note that countries which actually fall
furthest in KEI rankings, increased their coal consumption even
more. The Philippines lost 20 positions and increased its coal con-
sumption by 554 percent, Indonesia lost 6 positions and ramped up
its coal consumption by a staggering 791 percent.
Overall, there is no clear relationship in the data, correlation
coefficient being almost zero, r = - 0,09 and not significant as
p = 0,52. The knowledge economy was described as the next stage
in development, after the early ‘dirty’ industrialization dependent
on coal and oil in later stages, supposedly driven by the creation
of knowledge and information instead of hard assets. There is no
support for such claims in the actual data.
4. Discussion
Our findings concerning the exponential relationship between
KEI (depicted in Fig. 1) and per capita GDP in PPP are in accordance
with previous work of authors Chen and Dahlman, who analyzed
 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300
Fig. 6. Relative changes in coal consumption and KEI rankings. Number of countries, n = 53, Source of data: (The World Bank, 2012b; Statistical Review of world Energy,
2013).
data for the year 2002 (Chen and Dahlman, 2005). The only differ-
ence is that the exponential function in their analysis is steeper and
individual countries are more dispersed around it, thus the reported
index of determination is smaller R2 = 0,67.
This relationship is of utmost importance, as wealth can be
defined as humanly useful forms of matter and energy, and the
relationship between GDP and resource consumption has been
well known for a long time (Heinberg, 2011; Tainter, 1990; Smil,
2005; Brown et al., 2011). But as we know, the knowledge econ-
omy should be a mode of economic development not heavily
dependent on non-renewable natural resources. Can advanced
knowledge economies avoid this relationship? We have addressed
this question separately in the second part of the results, the Natural
resource consumption of Knowledge Economies and unfortunately,
the results of our analysis do not support this hypothesis. We have
found that advanced knowledge economies were, in general, not
more resource efficient (resource efficiency defined as GDP/MF)
than other poorly developed countries with low KEI values and on
top of that, per capita resource consumption was also much higher
in advanced knowledge economies.
The data in this section of the results were from the year 2008 –
13 years since adoption of the KEI. However, the idea of the knowl-
edge economy is much older. Yet to this day, the supposed merits
of this mode of economic development have failed to materialize
and it is hard to find any reasons for optimism as why it should
change in the future.
Peter Johnston, in his work focused on the knowledge economy
and sustainable development, stated that resource consumption in
OECD countries could be actually reduced by a factor of 4 by the
year 2010 thanks to the transition of those countries to a knowl-
edge economy (Johnston, 2001). Today we know that it did not
happen. On top of that, authors of the study Material footprint of the
nations documented that in the period 1990–2008, MF grew con-
tinually for most countries, namely USA, Japan, UK, Australia, China,
Brazil, India and also for whole groups of countries like EU-27. The
aforementioned OECD countries experienced similar growth in MF
(Wiedmann et al., 2015), thus the trend is exactly the opposite of
what was expected. In the case of EU-27 and USA, both GDP (GDP
in PPP, constant 2005 dollars) and MF grew steadily, denying any
gains in resource productivity (defined as GDP/MF) or decoupling
of natural resources from economic growth. The US economy even
297
shows a tendency to worsen the ratio of resource productivity, as
is demonstrated by faster growth of MF compared to GDP. That is
crucial, as those examples represent one of the most advanced KE’s.
The USA ranked 12 in comparison with 146 other countries with KEI
of 8,77, while EU-27 average KEI is 8,19, again very high value com-
pared to the total average for all countries of only 5,08 based on KEI
data for the year 2012. Only China managed to improve its resource
productivity, but still it was accompanied by a huge increase in the
consumption of natural resources.
There could be objections to the fact that in the present study we
have not used many variables to track resource consumption and
thus defensibility of our conclusions is weak. We have highlighted
only the important ones – Material footprint for its generality and
comprehensiveness regarding overall resource use and oil con-
sumption for its vital importance in the transportation sector and
its rapidly increasing scarcity (Höök et al., 2009; Bardi, 2014). Coal
consumption was highlighted due to its increasing scarcity (Patzek
and Croft, 2010) and also for its dramatic impact on the increase of
CO2 in the atmosphere and significant contribution to global warm-
ing which it has along with oil (Energy Information Administration,
1993). We focused exclusively on the side of inputs to the economy
and not the outputs. However, both sides are clearly connected as
what is consumed sooner or later becomes waste. In a recent study
(Schor and Knight, 2014), Kyle Knight and Juliet Schor found no evi-
dence for decoupling between CO2 consumption based emissions
and economic growth, findings similar to an analysis performed
with MF by Wiedmann et al. (Wiedmann et al., 2015). The current
study, namely Figs. 5 and 6, shows finding which are in accordance
with these results, as the best performing knowledge economies,
who gained the highest positions in KEI rankings are also massively
ramping up their fossil fuel consumption, thus increasing their CO2
emissions. Our analysis is definitively not exhaustive, but we think
it is sufficient.
Since we already know that KEI scores are related to the wealth
of the country expressed as per capita GDP (depicted in Fig. 1, page
5), we cannot escape the notion of convergence when we assess
growth rates of knowledge economies. According to a hypothesis
of unconditional convergence, countries with absolute lower GDP
per capita in PPP should grow faster than more advanced countries,
which partially contradict hypotheses that advanced knowledge
economies should experience faster growth, as KEI and per capita
298 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300
GDP are positively related. However, the hypothesis of uncondi-
tional convergence has not until recently been supported in the
literature.
Robert J. Barro and Xavier Sala-i-Martin tested this hypothesis
for 1960–2000 for 112 selected countries. They reached an oppo-
site conclusion when GDP growth rates of selected countries were
mildly positively correlated with absolute GDP per capita levels
(r = 0,19), thus countries with higher GDP per capita tended to grow
faster, further increasing wealth disparities between rich and poor
countries (Barro and Sala-I-Martin, 2004). This conclusion is in line
with other authors who examined a similar time period (Acemoglu,
2009; Epstein et al., 2007). This body of evidence is thus favorable
for the whole idea of the knowledge economy.
Examinations of more recent GDP growth patterns yielded
different conclusions. The authors of a study named Global
unconditional convergence among larger economies after 1998?
(Korotayev et al., 2011) verified hypotheses of unconditional con-
vergence on data set for the period of 1998–2008. To reach this
conclusion, they modified nations selected for analysis by taking
out countries with small economies, expressed by low GDP per
capita level and also by the small total size of the economy. They did
it on the basis of an observation that the countries in the data set
were highly unstable in their economic performance, which varied
wildly, lacked stability and created noise in the data. For the dataset
excluding countries with a total economy smaller than 40 billion
(GDP in PPP, constant 2005 dollars) the resulting correlation was
found r=−0,51, p < 0,0001, which is a relatively strong, statistically
significant negative relationship.
Similar analysis has been repeated by the current author in a
previous study with these results: In a dataset containing 62 coun-
tries (representing 98,53% of world total GDP and starting in 1993)
data about initial GDP per capita in PPP(constant 2005 dollars) were
compared with per capita GDP growth rates in the following period
of 1993 – 2012. It has been found that aforementioned variables
were also negatively correlated (r= −0,605, p < 0,0001) (Hájek and
Režný, 2014).
Korotayev et al. explain this shift from global divergence
reported in the earlier literature to global convergence by the tim-
ing of the phases of the demographic transition in different world
regions (Korotayev et al., 2015). Authors argue that the demo-
graphic transition in the first decades after the second world war
in the developing world was not as much connected to radical
increases in the GDP per capita growth rates, because it consisted
mainly from the diffusion of healthcare technologies that caused a
very rapid decline of infant and child mortality. The resulting pop-
ulation explosion in the Third World created the situation when
both the world population growth rates and the GDP per capita
gap between the First and the Third World countries reached their
maximum levels. Once the majority of the Third World countries
entered into the second phase of the demographic transition with
markedly lower fertility rates, it contributed to the onset of the
Great Convergence, with shrinking gap in the per capita GDP values
between First and Third World countries which is currently set to
continue (Grinin and Korotayev, 2014). We already know that there
is an exponential relationship between KEI and per capita GDP, so
the aforementioned observations of general growth patterns have
to have a negative influence on advanced knowledge economies.
Fig. 2 and Table 2 clearly capture the poor recent performance of
advanced knowledge economies.
Stating this, we are by no means against usage of alternative
measures of economic development, like the Index of Sustainable
Economic Welfare (ISEW) and General Progress Indicator (GPI),
quite the opposite is true. While GDP remains a very important
indicator, its maximization as a main economic policy is truly non-
sensical.
The theoretical underpinnings of a model of economic growth
driven by a growing stock of knowledge and rapidly advancing
technology, and even the model itself created by Solow, Romer
and Lucas, were indeed relevant and profound in the last century.
However, it seems that it no longer works in a world increasingly
dominated by resource scarcity, which is also a view supported
by the results of our study. Moreover, some authors offered and
documented different viewpoints on technological progress and
knowledge accumulation. According to Tainter, increasing invest-
ment in research yields declining marginal returns (Tainter, 1996):
“Once all of the findings at a given state-of-the-art level of investigative
technology have been realized, one must move to a more expensive
level. . .. In natural science we are involved in a technological arms
race: with every victory over nature the difficulty of achieving the
breakthroughs which lie ahead is increased.” As an example, Tainter
presents (Tainter, 1996) the case of gradually declining productivity
of medicine research measured as the number of patent appli-
cations per 100 R&D workers and per million R&D expenditures
in the USA during the years 1942–1958. He also presents a more
recent example of declining productivity of the USA healthcare sys-
tem, measured as Productivity index = (Life expectancy)/(National
health expenditures as percent of GNP). Value of this index more
than halved in the period of 1930–1982 (Tainter, 1996).
Richard Heinberg frames technological progress as a question
of shortening (Heinberg, The End of Growth, 2011), be it time or
costs of virtually every human activity, noting that nowadays, the
time and costs of many human activities have been reduced to a
minimum. We can never actually get to zero time and costs involved
in those activities, but it is certain that the closer we get to zero, the
more expensive and less valuable any further advancement of given
technology will be. Air travel provides us with a good example with
the story of the Concorde. A supersonic jet which could shorten a
flight from London to New York from almost eight to three and half
hours was too costly to be operated profitably and the last plane
retired more than ten years ago (British Airways, undated).
These examples are in a stark contradiction to the assumption
of endless technological progress in the growth model developed
gradually by Sollow, Romer and Lucas. However, the results of our
current study also suggest that continuing investment in research
and development does not anymore guarantees any immediate
and significant economic advantage. On the other hand, develop-
ing countries are reaping benefits of research previously done by
already advanced countries. That corresponds to the confirmation
of hypotheses of unconditional convergence (Korotayev et al., 2011;
Hájek and Režný, 2014).
Even the construction of the index itself raises many suspicions.
As we already stated on page 5, KEI is a relative index of perfor-
mance, thus any increase in observed variables is advantageous.
But it is not clear how endless increases in the number of comput-
ers and telephones in a population contribute to sustainability and
even advancement of the knowledge economy; obviously there are
saturation points. For example, Luxembourg secured its position
as an advanced knowledge economy with the help of an increas-
ing number of telephones per 1000 people from 1270 in the year
2000 to 1990 for the last available year (The World Bank, 2012c).
This indicates opulent consumption more than true and meaning-
ful advancement of the knowledge economy. There is indeed no
sense in increasing this variable even further. So we can see that
there is basically never enough knowledge economy as more tele-
phones and computers improve KEI, dangerously reminiscent of
the logic of endless growth behind GDP. We have to admit that not
all variables which compose KEI suffer from this fault, yet doubts
of what exactly is measured by KEI remain. KEI appears to be more
a clumsy collection of randomly selected variables measured by
different institutions, rather than a coherent, carefully designed
 L. Rezny, J.B. White and P. Maresova / Structural Change and Economic Dynamics 51 (2019) 291–300
dataset aimed exactly at knowledge economy. And we should not
forget that after all, knowledge remains an unmeasurable variable.
Benoit Godin in his work pinpointed and summarized the
situation around attempts to measure the knowledge economy,
confirming our doubts (Godin, 2006): “The knowledge-based econ-
omy is an umbrella concept: it allows one to gather existing ideas
and concepts on science and technology, and any indicators, into a
conceptual framework, i.e., all under one roof. . .To date, however, the
concept of the knowledge based economy has had a very limited impact
on statistics. Traditional statistics and indicators, based on input and
activity datasets, still dominate the measurement of science and tech-
nology and, above all, the concept of the knowledge based economy.
Certainly there have been some efforts in new fields (i.e., mobility of
personnel) — although none really fruitful yet—but there has been
far less effort on the central and new characteristics of the supposed
knowledge-based economy, like tacit knowledge. The major innova-
tion remains simply the collection of several indicators from different
sources under a new label.” It is clear that KEI as a benchmark for
knowledge economy leaves a lot to be desired, yet it is still probably
the best indicator we have so far.
5. Conclusion
An urgent need to take action to prevent disastrous scenarios is
increasingly recognized. Collin Campbell in his Oil Depletion Pro-
tocol (also known as the Rimini protocol) presented a proposal in
which world economies should reduce oil consumption by at least
the world depletion rate, about 2.6 percent to avert potentially dis-
astrous effects of Peak oil. On a similar note, Robert Hirsh in his now
well-known report to the American department of energy (Hirsch
et al., 2005) warned that to avoid impacts of peak oil, mitigation
measures should ideally be adopted twenty years before the peak.
Calls to immediately curb global CO2 emissions to reduce global
warming or avert effects of global warming altogether are even
more numerous.
It might appear that the knowledge economy is a similar
proposal, aimed at averting anticipated catastrophes by radical
alteration of our current model of economic development. The
World Bank in this regard writes about ‘sustainable growth’ (The
World Bank, 2007a, b), thus growth which can be maintained in
time, others stress lower reliance of such an economy on physi-
cal inputs or natural resources (Powell and Snellman, 2004). But
evidence presented in our current study does not support such
claims.
Our findings show a recent failure of advanced knowledge
economies to grow significantly, not to mention that they were
growing distinctly slower than their not so advanced counterparts.
On top of that, using the material footprint as an overall natural
resource consumption indicator, we have found that the material
footprint is positively related and thus it grows with an increas-
ing knowledge economy index. When assessing resource efficiency,
defined as gross domestic product divided by material footprint
index, no relationship has been found. Economies in top KEI ranking
positions do not seem to be more resource efficient than economies
in the lower half of KEI rankings. Similarly, we have not found any
evidence pointing to a relationship between the knowledge econ-
omy index and lowered fossil fuels consumption. Many countries
did exactly the opposite – gained in knowledge economy index
ranking while simultaneously increasing their fossil fuel consump-
tion, thus violating both of Heinberg’s sustainability axioms.
In his famous lecture Robert M. Sollow stated (Solow, 1974): “If
it is very easy to substitute other factors for natural resources, then
there is in principle no problem. . . . If, on the other hand, real out-
put per unit of resources is effectively bounded – cannot exceed some
upper limit of productivity, which is in turn not too far from where we
299
are now – then catastrophe is unavoidable.“ Mainstream economists
have so far mostly pretended that there is indeed no problem and
crucial, declining natural resources can easily be substituted. But
there is no evidence that such a position can be maintained. The
knowledge economy clearly presents an attempt to substitute nat-
ural resources for other factors in the economic process, and it is
failing miserably. On a similar note, Galbraith states: “The analy-
sis of resource costs and rents was well known to classical political
economy but obliterated by growth theory in the postwar era. It must
return.”(Galbraith, 2014). Economic strategies aimed at averting
impacts of the so-called ‘perfect storm’ should focus on real, hard
targets of decreased usage of critical, nonrenewable resources and
waste production, targets which should have higher priority than
economic growth and wishful thinking.
Conflict of interest
Authors declare that they have no conflict of interest.
Declaration
Authors declare that they have no competing interests.
Author contributions
L.R. designed research and analyzed data; J.B.W., P.M. and L.R.
wrote the paper.
Acknowledgments
Support for this work was provided from the specific university
research grant “Excellence 2019”, University of Hradec Kralove.
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