Latin America has significantly improved its macroeconomic stability and some aspects of its population’s well-being. However, greater efforts are needed to raise productivity levels, create goodquality jobs and reduce the size of the informal economy. Policies therefore need to be geared towards making the production system more diverse and more sophisticated. This chapter analyses the relationship between skills development and innovation processes in the production system, focusing on the impact of the stock of skills on long-term productivity and growth. Various indicators are used to measure the knowledge intensity of the production structure and to estimate the knowledge-based capital of the economy. The chapter also discusses certain indicators of the contribution made by foreign direct investment to skills development. Finally, looking at certain case studies, it discusses the relationship between skills, innovation and productivity increases at the firm level.