decide what to produce and how, to develop new ideas, and to execute and translate these ideas into products, processes and markets – outlays such as market research and databases, design and marketing, skills, management systems including how to get the right people into the right jobs, and joint learning through collaborative networks. Estimates of KBC at the aggregate level across countries, to-date available mainly for high-income OECD countries but also for Brazil, China and India, highlight that KBC is an important element of aggregate economic growth, with a significant positive correlation between investments in “core” KBC (excluding software and architectural and engineering designs to control for the links with IT equipment investment and real estate bubbles) and PPP-adjusted output per capita (Hulten 2013, OECD 2013).<sup>4</sup> This paper explores the implications of explicitly expanding the range of applicability of the concept of KBC to the risk management challenges that enterprises face – including both exogenous risks arising from unexpected shocks and changing demand and supply trends as well as the endogenous risks arising from voluntary resource reallocation and innovation investments that firms take in the pursuit of opportunities for better expected rates of return. Investments in different types of KBC are consequently conceptualized as investments in both resource reallocation/innovation and risk management capabilities, including investments to manage the risks associated with reallocation and innovation such as outlays on knowledge about emerging new technologies and changes in consumer preferences, on software and databases to build capabilities for more flexible adjustment, and on internal organizational routines to learn from failures: KBC investments allow enterprises to better convert voluntary but risky reallocation and innovation decisions into productivity and wealth-enhancing opportunities, and to better cope if the associated investments don’t turn out as anticipated.<sup>5</sup> In addition, the types of measured KBC are expanded in this paper to include an additional-to-CHS sub-category likely most important for developing country industries behind the global technological frontier, namely spending on collaboration-related assets to diffuse, capture, adapt to local context and use existing but new-to-the-firm knowledge, such as outlays on networking and peer-to-peer learning from global value chains and from foreign buyers and sellers, from consultants and study tours, and from other forms of global knowledge. The paper maps the main types of KBC investments into the four pillars of risk managed initially proposed by Ehrlich and Becker (1972), namely: investments in **_knowledge_** of supply and demand trends and the likelihood of shocks; investments in **_protection/enabling_** to reduce the probability of losses and increase the probability of successful reallocation and innovation; investments in **_insurance_** to reduce the size of losses by transferring resources from good to bad times; investments in **_coping/leveraging_** for _ex post_ loss recovery or benefit enlargement if the investments in reallocation and innovation are successful in the marketplace. As an illustration, the paper applies this framework to investments in KBC that have supported enterprise risk management in the Chilean wine industry.

> 4 One particular type of economic competencies-related KBC that has recently benefited from empirical studies in developing countries is “managerial capital”. See Bruhn et al. (2010) for an overview, and the complementary findings of Bloom et al. (2013a) on the impact of intensive consulting services from an international firm on the business practices of 20 large Indian textile experimental plants, and Bruhn et al. (2013) on the impact of a heterogeneous set of local consulting firms on 80 small and medium-sized Mexican firms across industries taking the support, with both studies finding that access to management consulting leads to better enterprise performance. 5 A number of recent papers, such as Andrews and Criscuolo (2013), Hulten (2013) and OECD (2013) examine key linkages between KBC, resource reallocation and innovation, but do not explicitly consider the role of KBC in facilitating enterprise risk management.

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