Robust growth in GDP per capita for most of the past two decades has helped Chile to join the ranks of high middleincome countries; its income per capita is now similar to that of Mexico. Economic reform, in particular the adoption of international best practice in macroeconomic management and development of market mechanisms, has underpinned Chile’s success in catching up. However, a gap with advanced countries remains, mainly owing to a gap in productivity performance. Chile’s R&D intensity, at 0.67% of GDP in 2004, is less than one-third of the current OECD average of 2.26%. However, it exceeds that of OECD countries such as Greece, Mexico and Poland. At 0.31% of GDP, business spending on R&D is particularly low. This is partly due to Chile’s specialisation in non-R&D-intensive industries, but also to the fact that the vast majority of SMEs in all areas do not engage in R&D and innovation. The overall orientation of Chile’s R&D partly reflects the still dominant, although declining, role of higher education in the performance of research.