to advance significantly to higher stages of the supply chain (World Bank, 2005). As in Thailand and Chile, Poland has rapidly increased its stock of human capital, reflected by increasing average years of education of adults in each economy ( **Figure 9** ). In addition, Poland experienced a wave of progressive institutional reforms in the 1990s following the collapse of the Soviet Union, followed by a second wave on accession to the European Union, which would have supported domestic investment strength and aided in attracting FDI (Georgiev et al., 2018).

Both Poland and Thailand have expanded into industries more closely associated with more developed economies.<sup>19</sup> They illustrate how increasing industrial complexity and quality can improve productivity through a range of channels. For example, the existence of more complex industries can begin a chain-reaction of further development as the fixed costs associated with developing a domestic skill-base are spread more widely (Hausmann et al., 2007). A substantial literature explains the benefits of network and agglomeration effects which can foster the development of increasingly specialized, complex and productive industries (Fujita et al., 1999; Porter, 1989). In many convergence success stories, active government intervention has been used to establish production capabilities beyond an economy’s immediate comparative advantage (Cherif and Hasanov, 2019). An important channel through which advanced technologies and production methodologies can be imported is through participation in global value chains (World Bank, 2020c). However, policies to encourage and promote new industries and workforce capabilities, including those to encourage new “hubs” of sophisticated industries in particular regions, have been met with mixed success (United Nations Conference on Trade and Development, 2019; World Bank, 2019c).

Not all strongly-performing EMDEs have achieved success by increasing the complexity of their industrial capabilities. Some economies, such as Chile, have displayed fast productivity growth relative to other EMDEs while remaining concentrated in the production of primary commodities. Copper alone accounts for 20 percent of total exports, while one-third consists of agricultural products in 2017. Therefore, Chile is an important, albeit rare, counterexample of a commodityexporter which has experienced robust productivity growth. Expanded export markets and increasing value-added content have been accomplished through quality-upgrading of food exports (Herzer and Nowak-Lehnmann D., 2007; Agosin and Bravo-Ortega, 2009). Chile has also benefited from high levels of education, institutional quality and a macroeconomic policy framework that has provided stability and certainty for the private sector, boosting productivity growth ( **Figure 9** ; Kalter et al. (2004)). Therefore, with high levels of human capital and institutional certainty, productivity can still rapidly grow while remaining concentrated in a subset of traditionally-low productivity sectors and pursuing quality upgrading and diversity within existing sectors. Economies such as Chile that are less concentrated in manufacturing production have also been able to benefit from technology transfer and investment financing through high FDI inflows ( **Figure 9** ).

# **5 The future of convergence**

Existing convergence models do not guarantee continued success in those economies who have made progress in reducing productivity gaps or provide a clear route for progress in those that have not.

> 19Imbs and Wacziarg (2003) find that industrial diversification occurs as part of the standard development process as income per capita increases. So when controlling for income per capita, the significance of the ECI variable in driving convergence suggests that transition-economies have expanded beyond their immediate comparative advantage for a given level of development.

21