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Innovation and cross-border absorption of knowledge are central forces behind economic convergence and sustained growth. Absorption of technology is a necessary step to promote the development of human capital and the productive base, paving the way for innovations at the global knowledge frontier. Research and development, patents, trade, and foreign direct investment are major channels of technological absorption, allowing diffusion of new ideas and manufacturing best practices among countries and firms. These channels constitute the central focus of this study. This study uses patent databases, surveys of enterprises, and case studies to investigate how specific channels of absorption molds decision making about technology. Trade and FDI flows show considerable promise as catalysts for the region to upgrade its technology and near the global technology frontier. Econometric analysis using enterprise surveys from all Europe and Central Asia countries helps to understand the conditions and policies that induce firms to incorporate external knowledge and technology into their overall growth strategies.

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