This Report focuses on a number of structural issues that have passed largely unnoticed and where substantial degrees of freedom remain for domestic policymaking vis-à-vis the international trade rules. Its key concern is the building and co-evolution of domestic institutions that promote innovative economic and social development. Its approach is based on the understanding that, in a world increasingly driven by innovation, the framework conditions indispensable to economic catch-up are being transformed, and this calls for updated responses. The transformation that business needs in order to rely on innovation as a competitive weapon cannot be delivered solely by market-based incentives or the supply of generic public goods such as macroeconomic stability, the rule of law, and functioning financial markets. The specific policies required to build capabilities within the knowledge, business and policymaking/ governance subsystems largely fall below the radar of WTO agreements.

The review of the world industry focuses on salient features of global industrial performance during 1990-2002. Quantitative assessments are obtained by the use of six industrial indicators. The narrative addresses industrial performance in three dimensions: activity, industry and technology. Levels of industrial activity are measured and discussed under two aspects and with reference to the pivotal development indicator of per capita income. The first aspect is domestic and involves the potential of 'manufacturing income' of each economy. The second is international and introduces the perspective of comparative advantage in industry, which is associated with the potential of 'manufacturing trade'.
Structural characteristics are used to assess economies in the other two dimensions. The industry dimension is represented by the weight of industrial production and trade in the entire economy, which provides an indicator of 'industrial advance'. The technology dimension is assessed via the weight of medium- or high-technology branches in industry, which provides an indicator of 'technological advance'. The rationale behind emphasizing this view of structural traits is the key role of industry-cum-technology for economic growth.