Innovation for inclusive structural change

The chapter proposes the foundations of an analytical framework to identify innovation pathways that lead to inclusive structural change in low- and medium-income countries (LMICs). Innovation pathways depend on how actors, interactions, and conditions affect the origin of innovation; the uptake of the innovations (adoption and diffusion); the impact of this diffusion on upgrading; the extent to which technological upgrading scales up to drive structural change and inclusion; the complementarity among these processes; and the potential trade-offs between structural change and inclusion. After delineating the analytical framework, the chapter focuses on applications of the framework to identify typical trade-offs between inclusion and structural change, and policy options to tackle these trade-offs and achieve outcomes of inclusive structural change. We finally propose a research agenda to build upon the framework and directly inform policies for inclusive structural change. The contribution of this work aims to respond to the recently increasing demand coming from international institutions, inter-departmental research funds, NGOs and national ministries, for improved knowledge to shape a more effective innovation policy for inclusive development in LMICs.