To provide the greatest incentive for investment in the context of the IT revolution, business must operate in an environment that will permit them to transform themselves in ways that allow technologyintensive investment to have the highest possible effect on productivity growth. Similarly, labor markets must be flexible enough to allow for the prompt re-allocation of resources in response to changes in demand.
The economy also must be competitive enough to allow useful innovations at some firms to be transmitted throughout the industry by market pressure. This underscores the importance of the overall regulatory and property rights environment to fostering investment necessary for productivity growth in emerging economies.