The knowledge economy plays a leading role in current socioeconomic development and has changed industrial development. This study addresses whether changes in industrial development have improved the knowledge innovation, technical level, and productive efficiency of industries. Taiwanese industries were typically labor and technology-intensive and policy-oriented manufacturing industries in the past. This study analyzes the change in the spatial distribution of industries in southern Taiwan, and further examines the effect of knowledge interactions between industries and the region on industrial development, as well as the restrictions and opportunities for future development. Industries in southern Taiwan have formed a solid foundation based on policies promoted in the past. Nevertheless, an over-reliance on policy guidance has impeded breakthroughs and motivation to learn. Analytical results indicate that industries with stable and changing clusters achieve sustainable economic growth by creating links for innovative knowledge interactions through collaboration with suppliers and competitors. Accordingly, knowledge sources depend not only on internal research and development but also on external interactions to stimulate innovation. Restated, the input of key knowledge generates a high output, provides opportunities for industry transformation, and decreases resource consumption to achieve environmental sustainability during development. Additionally, the ripple effect of innovation, research, and development enhances structural evolution in industries, generating sustainable economic development.
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