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The introduction of new products or production processes.

Innovation is therefore the last stage in the important process of (a) invention, the discovery or devising of new products and processes, and (b) development, the process by which the ideas and principles thrown up at the stage of invention are embodied in concrete products and techniques of production leading to innovation. In one sense, innovation is econornically the most important of these stages, since it is only when this stage is completed that the fruits of invention and development are gained.

Reference: The Penguin Dictionary of Economics, 3rd edt.