This article examines how innovation functions as a strategic engine of economic growth and as a transformative force reshaping development models in the digital economy. Building on Schumpeterian and endogenous growth perspectives, the paper develops a conceptual analysis of the mechanisms through which digital innovation increases productivity, enables new business models, restructures sectoral value chains, and redefines the role of institutions and human capital. The study applies a qualitative synthesis of the literature on digital transformation, innovation ecosystems, platform economies, and sustainable development to identify the channels linking innovation to macroeconomic and mesoeconomic change. The findings suggest that innovation in the digital economy should be understood not merely as technological upgrading, but as a multidimensional process involving organizational renewal, business model redesign, data governance, capability building, and institutional adaptation. The article argues that economies that are able to align digital infrastructure, human capital, regulatory quality, and innovation policy are better positioned to transition from factor-driven development to knowledge-based, inclusive, and resilient growth. For emerging economies such as Vietnam, the digital economy creates opportunities to accelerate industrial upgrading and public-sector modernization, yet this potential remains constrained by uneven digital capability, fragmented innovation systems, and institutional bottlenecks. The paper concludes with policy implications for building innovation-oriented development models that are both competitive and socially inclusive.