Although most Latin American and Caribbean countries have greatly increased their exports during the early 1990s, the goal of moving towards higher value added products in their export structure is proving as elusive as during the import substitution industrialization period. This paper brings together ideas about and indicators of the region's capacity to compete in advanced industries or products in the international market-place. It develops an index of the technological specialization in the region's exports to the most sophisticated markets (i.e., the OECD countries) and accounts for variations in specialization on the basis of the performance of the national systems of innovation and the dynamics of investment in innovation. The paper is divided into five sections. After the introduction, it presents the definition and the database for calculating the technological specialization index. The third section examines long-run trends in the capacity of the region to adapt to international competition, particularly in comparison with the performance of the most developed countries (the Group of Seven), the Asian tigers (Hong Kong, Korea, Singapore and Taiwan, China), the potential Asian tigers (China, Indonesia, Malaysia and Thailand) and the newly industrialized European countries (Greece, Ireland, Portugal, Spain and Turkey). Data for specific Latin American and Caribbean countries are also presented. The fourth section looks into the determinants of the region's international performance in high-technology products, particularly investment in innovation by Governments and firms. These determinants are divided into those related to the functioning of national systems of innovation in the region (public policy, technological infrastructure, human capital formation, and the internal articulation of the system) and those related to investment in innovation (the aggregate expenditure on research and development (R & D) and its structure, and human resources and enterprise investment in R & D). The paper concludes by addressing policy issues that impact on the region's performance with respect to investment in innovation. In particular, it goes beyond the usual technology policy instruments and puts forward ideas regarding ways to tackle problems related to the lack of Schumpeterian entrepreneurs, asymmetrical information and the incentive system in the region's national systems of innovation
