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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’s 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 sector. Using this findings, the authors propose a menu of policies, some of them whit a general scope and others sector specific.