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1. Small business\u2014Latin America. 2. Small business\u2014Latin America\u2014Case studies. I. Rabel- lotti, Roberta. II. Inter-American Development Bank. Sustainable Development Dept. Micro, Small and Medium Enterprise Division. III. Title. IV. Series.

Carlo Pietrobelli is Full Professor of Economics at the Law School of the University of Rome III, It- aly. He holds a Ph.D. in Economics from the University of Oxford and a Doctorate in Economics from the University of Rome La Sapienza. Roberta Rabellotti is Associate Professor of Economics at the Department of Economics and Quantitative Methods of the University of Piemonte Orientale, It- aly. She holds a M.Sc. in Development Economics from the University of Oxford and a Ph.D. in Eco- nomics from the Institute of Development Studies at the University of Sussex, U.K. This paper draws on the empirical findings of a project on clusters, value chains and competitiveness carried out for AGOR\u00c0' 2000 (Italy) on behalf of the Micro, Small and Medium Enterprise Division. The authors wish to thank Alessandro Bolondi and Carlo Manfredi, Juan Jos\u00e9 Llisterri, Claudio Cortellese and Pablo Angelelli. They also wish to thank the members of the international research team who partici- pated in this project: Elisa Giuliani (University of Pisa), Alessia Amighini (University of Piemonte Orientale, Italy), Jos\u00e9 Eduardo Cassiolato (Universidade Federal de Rio de Janeiro, Brazil), Helena Lastres (Universidade Federal de Rio de Janeiro, Brazil), Arlindo Villaschi (Universidade Federal de Esp\u00edrito Santo, Brazil), Raquel S. Gomes (MIT), Clemente Ruiz Duran (Universidad Nacional Aut\u00f3- noma, Mexico), Eduardo Zepeda Miramontes (Universidad Aut\u00f3noma Metropolitana, Mexico), Clau- dio E. Maggi Campos (Fondo de Innovaci\u00f3n Tecnol\u00f3gica de la Regi\u00f3n del B\u00edo B\u00edo, Chile), Ner Artola (Universidad Centroamericana, Nicaragua), Davide Parrilli (University of Ferrara, Italy), Marco Dini (Santiago, Chile), Gianfranco Viesti (University of Bari, Italy), and Domenico Cersosimo (University of Calabria, Italy). In addition, the authors thank Manuel Albaladejo, Carlos Guaipatin, Sanjaya Lall, Jorg Meyer-Stamer, Rajah Rasiah, Andr\u00e9s Rodr\u00edguez-Clare, Fr\u00e9deric Richard, Giovanni Stumpo, and Morris Teubal for their comments. Preliminary drafts of this paper were presented at seminars held in Washington D.C., Buenos Aires, Geneva, Mexico, Italy and Brazil.

official position of the Inter-American Development Bank.
January 2004
This publication (Reference No. MSM-124) can be obtained through:

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To benefit from the globalization process, Latin American and Caribbean countries should increase their competitiveness. Micro, small and medium enterprises may play a critical role to trigger the region\u2019s competitiveness, and government should support them. This study provides policy lessons and recommendations on how to support SME upgrading in the global market.

The study analyzes the SME upgrading process in the context of clusters and value chains as well as in different economic sectors. The analysis is based on the collection of original data from twelve new clusters in Latin America, and on an extensive literature review of cluster studies. These cases are the largest selection available on which comparative exercises have been carried out. Based on the empirical analysis, the authors explain how small and medium enterprises located in clusters can innovate as a consequence of external economies and joint actions (collective efficiency). They also point out that collective efficiency and upgrading may vary according to patterns of governance within the value chain and the economic sec- tor. Using this findings, the authors propose a menu of policies, some of them whit a general scope and others sector specific.

In the last years the Inter-American Development Bank has been very active promoting com- petitiveness and SMEs in the region. A competitiveness strategy was approved in 2003 and various loans and technical cooperation were prepared in this area. In addition, it seems that the countries of the region are committed to continue working on competitiveness in the next years. With this document we expect to contribute to the policy debate on competitiveness as well as to provide practical examples of what can be done to promote externalities, joint ac- tion and innovation for SMEs located in clusters around the region.

\u00c1lvaro R. Ram\u00edrez
Chief
Micro, Small and Medium Enterprise Division