This chapter examines ways to foster competitiveness and increase productivity to avoid the middle-income trap. It begins by contrasting the achievement of developing economies in boosting per capita incomes with their more uneven labour productivity growth. The first section examines trends in diversification and specialisation as a factor explaining low productivity growth and discusses the importance of diversifying into higher value-added sectors. The last four sections of the chapter present some of the core underlying factors that can foster sustainable competitiveness and increase productivity, including: product, labour and financial market institutions and public governance; synergies between education and technology policies, examining educational attainment and the channels through which middle-income countries tap global knowledge and generate knowledge domestically; policies to create equality of opportunity, looking at recent trends in income distribution; and finally, the crucial role that effective governments play in implementing reforms.