Supporting innovation and production development is fundamental to compete in global economies. Innovation is gaining momentum in Latin America, and many countries in the region are involved in designing and implementing better policies to promote it for a more inclusive and sustainable growth. Over the last decade, many countries in Latin America have strengthened their institutional capacities for innovation policies. However, public investment is still very limited and the commitment of the private sector to invest in innovation is still low.

In the context of what at the Development Centre we have termed “shifting wealth” developing economies are increasingly engaged in the redefinition of their development strategies. The recognition that development is more than growth, and that it requires a change in socio-economic structures in order to redistribute rents and increase equality of opportunities for all citizens, is accompanied by a renewed attention towards production development and innovation in many developing economies. In this respect, increasing attention is paid to the role of innovation as a potential source of more inclusive and sustainable development.

Panama is a unitary country with elected regional authorities, composed of the nine provinces of Bocas del Toro, Chiriquí, Coclé, Colón, Darién, Herrera, Los Santos, Panamá, Veraguas, and of five indigenous regions (comarcas): Emberá, Kuna Yala, Madungandi, Ngäbe-Buglé and Wargandi. The provinces and comarcas are further sub-divided into 75 districts and councils, as well as 640 village areas (corregimientos). The capital, located in the province of Panamá, is Panama City.

Panama is one of the fastest growing economies in Latin America, but there is a consensus that policies are needed to transform its growth into an inclusive and sustainable development path and that more should be done to spur innovation and productivity growth. Since the 2000s, the country has started to design and implement policies to promote innovation and has set up a mechanism to monitor implementation. This study analyses the recent economic and innovation trends and the innovation policy in the country, focusing, in particular, on the implementation of the National Strategic Plan for Science, Technology and Innovation (PENCYT) 2010-2014, with a view to identifying lessons to improve the innovation policy.

Panama’s gross domestic product (GDP) grew on average by 6.57% a year between 1990 and 2012, twice the average growth of Latin America during the same period. The country has recovered relatively well from the financial and economic crisis of 2008, helped by the expansion of the Panama Canal and other investments in infrastructure development. In parallel, since 1990 real per capita incomes in Panama have more than doubled. Despite the progress, however, poverty and inequality persist in the country, mostly in rural areas, and unemployment is still high, especially among the young (15.6% in 2011).

This chapter presents an overview of innovation trends in Panama. The country has experienced high economic growth during the last decades and has increased its specialisation in services. Since 2004 it has implemented targeted efforts to increase skills for innovation by promoting graduate and postgraduate training in foreign universities and has started to promote domestic research and development (RandD) and innovation. While Panama has started to accumulate some domestic innovation capabilities, it still lags behind most other countries in Latin America in terms of RandD expenditure, human resource development and private sector innovation efforts.

Panama’s experience in designing and implementing innovation policy is recent. The country has made progress in learning how to elaborate pluri-annual plans and monitor the implementation of innovation policy. Nevertheless, major challenges remain: especially in guaranteeing pluri-annual budgeting for innovation; in improving the co-ordination of the promotion of science, technology and innovation with the national development strategy; and in scaling up initiatives in key priority areas. This chapter focuses on: i) the institutional setting and governance for innovation policy; ii) the national innovation strategy and policy mix as outlined in Panama’s National Strategic Plan for Science, Technology and Innovation (PENCYT) 2010-2014; and iii) the main implementation challenges.

This chapter presents an overview of the importance of setting up systems to monitor and evaluate innovation policy. It presents the experiences of different countries that are evaluating innovation policies, focusing on the institutional capabilities that are required and the challenges involved in setting up effective monitoring systems. It concludes by assessing the experience of Panama in implementing and evaluating innovation policy, pointing to key issues for further improvement.