The theoretical part of the doctoral dissertation sets out the importance and the role of knowledge as a basic economic resource. It lays out the theoretical features and preconditions for the knowledge economy, such as rapid development of science and globalization. Knowledge economy is strongly linked to sustainable development, and as a result innovations have become an imperative of economic development. Therefore, developed national economies tend to form national innovation systems in order to evolve into innovative societies. Greater use of knowledge and innovation in all spheres of society leads to the transformation of an economy into an economy based on knowledge. The theoretical foundation for this transformation lies in Knowledge Economy Framework within the "Knowledge for Development" program of the World Bank. This theoretical framework consists of four pillars of knowledge economy: economic incentives and institutional regime, educated and skilled workforce, efficient innovation system, and modern and adequate information infrastructure. The synergy of transformation in the four pillars creates a knowledge-based economy. The empirical part of the dissertation presents the research carried out in order to establish the transformation "scenarios" for three groups of countries, grouped according to their income level, into knowledge-based economies. The research has been conducted by using indicators of knowledge economy, which are a part of Knowledge Assessment Methodology (benchmarking tool of the World Bank), on a sample of 118 countries. The application of the principal component and multivariate analyses determined different significant factors and pillars of knowledge economy for the different income groups. Three models of managing knowledge economy factors and achieving a more rapid sustainable development for all three income groups have been developed based on the obtained results. Moreover, the research results made it possible to formulate scientifically based proposals and measures of enhancing the development of Republic of Croatia towards a knowledge-based economy.