Digital Technologies, AI, and New Frontiers in Technological Upgrading

This chapter examines how digitalization, artificial intelligence (AI), and platform-based business models are reshaping opportunities for technological upgrading in the Western Balkans. It argues that digital transformation is not only a technological process but also a governance challenge that requires adaptive institutions, continuous learning, and coordinated policy action. While digital technologies can enhance productivity, innovation, and global integration, their benefits are unevenly distributed and often limited by weak institutions, skill gaps, and fragmented governance systems. Using the Developmental Network State (DNS) framework, the chapter analyses how latecomer economies can turn digital transformation into a driver of inclusive development. It explores the roles of human capital, institutional coherence, infrastructure readiness, and firm-level absorptive capacity as key foundations for sustainable digitalization. The discussion introduces adaptive governance as a flexible approach that allows governments to experiment, coordinate, and respond to rapid technological change even under capacity constraints. Practical measures such as national digital transformation units, regional AI observatories, and local experimentation platforms are proposed as mechanisms to build learning-oriented systems. The chapter concludes that becoming a “learning state” is essential for governing digital technologies effectively and ensuring that innovation contributes to inclusive and sustainable development.