violence and ensuring legal and institutional stability, has been found to be important in creating the optimal conditions for investment and innovation (World Bank, 2017)).

This chapter finds a key role for policies that can enhance the complexity of an economy beyond its immediate comparative advantage. Expanding the diversity of an economy to a broader set of increasingly complex industries to benefit from innovation spillovers and network effects is an attractive proposition, but one which is difficult to implement. New technologies that are likely to be introduced into the manufacturing sector will also mean that the bar for maintaining competitiveness with other economies in complex sectors will be increasingly difficult (Hallward-Driemeier and Nayyar, 2017). Countries should consider their proximity and connectedness to existing supply chains in more developed economies to judge how they can most readily benefit from technological spillovers. In addition, future risks from automation should be considered when expanding into new complex and higher-productivity sectors. Alternatively, a range of high-productivity service sectors, such as finance, offer alternatives to industrial-led development, but often require a costly investment in skillsets that are difficult to attain. Countries can also focus on quality-upgrading and diversity within existing sectors to enhance production capabilities and generate knowledge spillovers (Brenton et al., 2009).

Specific country examples show that a range of possible development approaches have been important in driving membership of the most rapidly growing productivity convergence club. These have included integration into regional supply chains, through the attraction of FDI and trade liberalization. Export-promotion policies have been used to increase engagement in value chains to promote knowledge transfer. Alternative strategies have consisted of maintaining a concentration in primary product production but pursuing quality upgrading and diversification among these products. However, both strategies face challenges as global trade volumes and commodity prices stagnate. And in many cases, the promotion of new industries or production capabilities by governments has failed or has not driven the same level of growth as observed in Club 1 economies. Notably, Club 1 economies have had a foundation of higher-than-average education levels and institutional quality than other economies, which may have increased the likelihood of success for policies that have aimed to promote certain industries. These features are likely to have been associated with high levels of government capacity, which is key to delivering successful industrial policies (Maloney and Nayyar, 2018).

**Future research** . Understanding the drivers of transitions of economies onto higher convergence trajectories can provide useful insights for policymakers about the conditions necessary for faster productivity growth. However, methodologies to isolate the period of transition are currently under-developed and generally rely on comparing results over different estimation samples. Future research should place more focus on estimating transition points. Further work should also be performed to understand the importance of developing capabilities in more advanced and complex sectors, while ensuring broad-based spillovers of new technologies to existing industries and sectors.

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