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This article explores in depth the role of indigenous and foreign innovation efforts in technological change and catching up and their interactions in the emerging economies. It presents original evidence and argues that, despite the potential offered by globalization and a liberal trade regime, the benefits of international technology diffusion can only be delivered with parallel indigenous innovation efforts and the presence of modern institutional and governance structures and conducive innovation systems. This conclusion is compounded by the expected inappropriateness of Northern technology for countries in the developing South that calls for greater efforts to develop indigenous innovation. In this sense, indigenous and foreign innovation efforts are complementary. © 2011 Elsevier Ltd.