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Over the longer term, economie growth arises from the interplay of incentives and capabilities. The capabilities define the best that can be achieved; while the incentives guide the use of the capabilities and, indeed stimulate their expansion, renewal or disappearance. Both incentives and capabilities operate within an institutional framework: institutions set rules of the game, as well as directly intervening in the play; they act to alter capabilities and change incentives; and they can modify behaviour by changing attitudes and expectations.
From the brief introduction to the technological capability approach pro-vided above, some important considerations emerge. Firstly, this perspective highlights how development is mainly the result of a transformation, diversi-tication and upgrading of the production process. In order to activate these fundamental dynamics certain technological capabilities must be internally developed and/or externally absorbed and adapted.
Moreover it is stressed how this cumulative process takes time and involve many actors which in different ways contribute to the creation of industriai commons. Secondly, measuring and identifying the level and typologies of technological capabilities in LDCs, this perspective calls for a proactive and selective intervention of state's governments in the process of technological catching up. Finally, stressing the existence of an interplay between incentives and capabilities, this approach remembers economists that incentives and market signals are very often not enough. This is especially true when an economie system lacks those capabilitis which are necessary for exploiting incentives and, more generally, market opportunities.35
Following a parallel line of reasoning, many economists have stressed,36 how the existence of a series of pervasive market failures and deficienciés, problems of coordination and information externalities at the macro level strongly reduce developing countries' possibility for their technological catching up and in the development of large domestic firms. The existence of these structural limits of the market calls for state's intervention, that is, for the im-plementation of selective industriai, technological and trade policies.
38 A. Andreoni, The economics of capabilities, paper presented at the Land Economv PhD workshop, University of Cambridge, February 2010.
36 À ^^T2' F,rom miracle to t0 ^covery: Lessons from four decades ofEast Asian experience, in Kethinkmg the East Asia miracle, Washington, D.C. and New York, 2001- D Rodrik Nor-malizing industriai policy cit.; H.J. Chang, The politicai economy of industriai policy cit