Increasingly, national and local economies must adapt and innovate by diversifying and upgrading their productive capacity. They must avoid stagnation in context of evolving economic, social and environmental circumstances. Cities benefit from more inclusive patterns of growth, greater resource efficiency, reduced environmental degradation, and enhanced social stability and inclusion. National and local governments play vital roles in facilitating the transformation process, in part due to their influence over the business environment and their potential to steer investment decisions in more productive, equitable and  sustainable directions.

Productive transformation policies (PTP) are defined as public programmes and instruments designed to create jobs and achieve sustainable growth through higher productivity and promotion of competitive sectors. PTP often focus on cluster and value chain development, agglomerations, foreign investment, business environment, and skills development. PTP involve dialogue between the public and private sector to ensure equity through prudent approaches to urban planning, city design, financing and governance.