Page 74 - Theoretical and Practical Interpretation of Investment Attractiveness

influencing them, in general, the development and solution of similar problems in this way
are significant.
N.D. Kondratiev's research 99 on economic development issues and innovations
affecting them is well known. In his research, the specialist highlights the main attention to
economic development periods, their continuity, and presents innovations as examples.
N.D. Kondratiev's concept played a fundamental role in the development of the
scientific research of the Austrian School representative Joseph Schumpeter. Today, Joseph
Schumpeter is recognized as a major scholar who has incorporated concepts such as
innovation and innovative processes into practical use 100 . His work "Business Cycles,"
published in 1939, elaborated on the theoretical foundations of innovation processes, the
effective implementation of created innovations (innovations), the technological processes of
innovation, and the fruitful impact on management, resulting in an increase in the volume of
production due to the new combination of economic resources.
Innovation is the creation of new technologies, new products, new material resources,
and the establishment of new industrial enterprises 101 . In the 1930s, economists focused
primarily on classifying innovation. The concept of "innovation" was understood not only
within the framework of technical progress but also based on the theories of factor
productivity.
According to B. Sonton, innovation encompasses socio-economic processes that
integrate innovations, discoveries, and previous experiences through practical
experimentation to effectively introduce advanced technologies and increase additional
income in the market 102 . B. Twiss provides a very similar definition, stating that innovation
is considered an economic achievement when innovations, discoveries, and practical
experiences result in successful innovations (new products) being offered on the market and
consumers paying for them, meaning creating demand 103 .
This is due to the different use of two factors (labor and capital), where labor is used
to increase capital resource productivity, or decreasing capital resources by increasing labor
resource productivity, meaning producing by means of methods of organizing labor that
provide labor consumption as a variable when labor costs increase (with unchanged capital
consumption), the volume of production increases significantly. Therefore, at the initial stage,
the increase in labor costs provides an opportunity to make full use of capital.
In the result, there is stable productivity, both total and average productivity. However,
the increase in the number of workers (the constancy of capital) in the final result leads to a
decrease in labor productivity, that is, the law of diminishing returns to labor productivity
begins to "work".

99 /N.D. Kondratiev. The Major Economic Cycles and the Theory of Predictions. Selected Works, compiled by Yu.V.
Yakovets. Moscow: Ekonomika, 2002. 767 p.
100 Shumpeter, I.A. History of Economic Analysis. – St. Petersburg: Economic School, 2004
101 Shumpeter, I.A. The Theory of Economic Development: Capitalism, Socialism, and Democracy. – Moscow: EKSMO,
2007. 864 pages.
102 Santo, B. Innovation as a Means of Economic Development. – Moscow: Progress, 1990. p. 83.
103 Twiss, B. Management of Scientific and Technical Innovations. – Moscow: Ekonomika, 1989.
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