In the context of knowledge economy, the process of economic development is examined on the proposition that (creation, acquiring, sharing, and effective application of) knowledge matters for economic performance. In this article, we examine the explanatory power of the knowledge economy model in comparison with the previous development models to study the achievement of greater economic development. After elaborating the methodology of knowledge economy, we also evaluate Iranian knowledge economy using World Bank Institutes data and software. It is found that in some aspects, i.e. information and communication infrastructure and human resources development, the situation of Iranian economy is moderate. However, in terms of economic incentives and institutional regime and innovation system, which significantly affect the creation and application of knowledge, there is a long way to go to meet the main objectives of the development outlook of I.R. of Iran.