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Trade and investment flows into less-advanced economies could bring about important technological spillovers that could boost firm-level productivity and bolster their long-term economic growth. However, learning by doing and various forms of innovation activities are typically underprovided in a laissez faire policy environment. This brief paper outlines some of the motivations for public sector interventions to support learning by doing and stronger technological spillovers. The paper aims to discuss these issues.

To accomplish this, the paper provides a brief discussion of three key areas for policy attention, covering: the features that make international production networks fertile platforms for these spillovers; the opportunities for technology spillovers in the services sector; and the challenges associated with policies to link SMEs into these sectors that are fertile ground for technology spillovers and innovation.

This paper concludes by presenting a few possible guidelines on innovation and technology policy based on the lessons of industrialization attempts in the last several decades. A key insight tying these strategies together is that of creating incentives to compete and innovate, and ensuring that support is outcome oriented and temporary.

This paper contributes to the literature and practitioner-oriented scholarship by providing a clear framework for thinking about how to promote technology spillovers from trade and investments, as part of new industrial policies.