<b>The System of Innovation and its Impact on Economic Development</b> The article discusses the factors that influence the development of innovational activity in the republic. In order to test the impact of innovation expenditures on the volume of innovations in the republic, we used linear regression analyzes and found strong interdependence. Also , we discuss the role of human capital and the level of development of financial system in stimulating continuous investments on innovational activity . Furthermore, after analyzing the data about implemented innovations in 2019 in the republic, we found that higher educational as well as research institutions participated in innovational activity very passively, which is of great concern. innovation, innovational economics, service, national innovation system, investment, economic mechanism, RandD, linear logarithmic regression analyzes, venture funds , angel investors 19-21 Modern Trends in Scientific Research and Development, Case of Asia Special Issue Taniev A. B