intensive activities. These industries are typically within the global technological frontier. With government support, farmers engaged in technological upgrading and thus improved productivity. For grape production, government action was consistent with the GIF framework: small growers were conducting successful experiments to increase production, and this caught the government‘s attention. Policymakers then initiated public-private partnerships to support technological upgrading and market development that promoted grape exports.<sup>51</sup> 130. Sometimes supporting technological upgrading requires various sectoral reforms. India‘s successful maize production also illustrates the effectiveness of that strategy. First, the government decided to liberalize the sector, lifting a ban on imported maize seed technology. This created healthy competition between domestic and foreign laboratories (including government research centers) to adapt imported technology to local conditions. Second, it was deemed necessary for the state to play a direct role in unleashing the potential for the sector; strong public investment took place in maize research, and producers were given public access to breeding material the government developed. Without this government support, domestic companies probably would not have entered the seed sector and competed with multinationals.<sup>52</sup> 131. Brazil also offers examples of effective growth identification and facilitation both in traditional agricultural sectors and in newer, higher technology ones. It has been an important producer of agricultural commodities since colonial times. For example, coffee was the traditional export crop that was the basis of the wealth of landowning elites in the state of São Paulo in the 19<sup>th</sup> century. More recently, Brazil has become an innovative global force in agriculture, as the world‘s largest exporter of many products, including beef. And controversial, long-standing government support for bio-fuels production has put Brazil at the global technological frontier in that ―new age‖ product.

132. Consistent with the new structural economics and GIF principles, the government identified key constraints to private initiatives, and provided key public goods in the form of basic research for use by private firms. An important government organization behind the success is EMBRAPA—the national agricultural research and extension agency. R&D allowed the country to improve productivity in both traditional and new crops, and to transform previously underused areas, like the savannahs. Econometric studies show that R&D and infrastructure improvements were essential to increasing agriculture‘s productivity.<sup>53</sup> 133. But education and R&D are not enough to facilitate the necessary industrial upgrading. A further crucial area for targeted interventions of the government to facilitate industrial upgrading is physical infrastructure, which has become a bottleneck to growth for many LAC countries. Improving infrastructure affects productivity and output through a variety of channels. In the short run, infrastructure investment can create jobs and growth in the local economy. In the longer run, it raises a country‘s output, by enhancing productivity, increasing private capital formation (by raising expected returns on private investments as the marginal productivity of inputs increases or transaction costs decline), facilitating the exploitation of agglomeration economies, and enhancing human capital. Calderon and Serven (2010) find that if each Latin

> 51 Naik (2006a).

> 52 Naik (2006b).

> 53 Barreto and Almeida (2009); Mendes, Teixeira, and Salvato (2009).

52