This paper provides an insight into the main elements of Latin American declining role in the world economy and international competitiveness in 1980s and the stabilization-cum-structural adjustment programmes undertaken during the 1990s. Essentially, macroeconomic stabilization without stagnation may be a necessary but not a sufficient condition to achieve not only sustained growth but also to foster dynamic competitive advantages. 

Consequently, this paper makes a case for combining macroeconomic stability and trade and FDI liberalization with a new set of policies that may be labelled “innovation policies”, pointing out some experiences of the OECD and some Asian developing countries in this field. 

The main purpose of this paper is to develop further arguments and suggestions to put in motion this set of trade and innovation policies in order to maximize the externalities to be obtained from FDI and the ongoing globalization process in order to reduce the gap between the actual and the best available practice at international level, to increase productivity and improve the quality of goods and services both for domestic and external markets.