This report shows starkly how wide the dispersion is in levels of industrial development, how much it has grown and, most important, how it reflects structural factors. Those structural factors are difficult to alter in the short to medium term-and often cannot be left to reverse themselves. Nor can they be expected to improve simply by exposing economies to rapid liberalization and globalization. They thus raise strong policy concerns. The international community and national governments together have to address the growing structural gaps that drive divergence. If they do not, there is a real risk of serious long-term marginalization of many countries from the dynamics of industrial development. The clear solution is to follow the high road to competitiveness-to develop capabilities and increase productivity growth through concerted innovation and learning.

The report also shows, among other issues, that successful developing economies have used widely differing strategies to build industrial capabilities and compete in world markets: building capabilities through domestic research and development (R&D), through foreign direct investment or through a combination of the two. Some, but relatively few, have succeeded by drawing in foreign technology largely at arm's length while building strong technological and innovative capabilities in local firms.