Book excerpt: Recent economic transformations in the world economy are progressing in two divergent directions – international production fragmentation and industrial agglomeration. Based on extensive data analysis and using models of interdependencies between key economies, this book analyses innovation systems that cross national borders. It is shown that technological complexity is an important factor in the formation of highly specific production networks, and why, for a number of production systems, fragmentation and clustering are two sides of the same coin. By outlining the picture of a world economy structured around networks of clusters and joined together through systems of linkages of components, people and knowledge flows, the author helps to promote a better understanding of recent economic transformations.