Using R&D-based models of economic growth as a foundation, it is argued that market-driven knowledge creation is necessarily linked to economies of scale and market-power. A factor demand model is applied to a new cross-country industry dataset to study market-power, economies of scale and the role of knowledge in an integrated approach. Empirical results reveal the presence of market-power and economies of scale in all of the investigated industries. R&D and spillovers explains some of the observed productivity growth. Spillovers are identified as an external source o economies of scale.