The paper implements the Schumpeterian notion of creative reaction to articulate and test the hypothesis that the shift to the knowledge economy in advanced economies is the result of the creative reaction of firms, caught in out - of - equilibrium conditions by the fast globalization of product and factor markets since the last decades of the XX century. Advanced countries specialized in the generation and exploitation of knowledge because of its relative abundance stemming from their sophisticated knowledge governance mechanisms and the larges tock of knowledg. On its turn this had strong ositive effects on TFP . The empirical analysis confirms that in advanced economies the specialization in knowledge - based activities substituted the previous specialization in mass-manufacturing activities supporting the increase of TFP. The new specialization in knowledge intensive activities has been stronger the larger was the exposition to international trade, the intensity of patent activities and the revenue per capita.
