Why do some countries catch up, while others stay poor? In recent years data on different aspects of development have improved a lot. To exploit this opportunity for more in-depth research we use factor analysis on a dataset of 25 indicators in 115 countries between 1992 and 2004. The analysis identifies four different types of capabilities; the development of the innovation system, the quality of governance, the character of the political system and the degree of openness of the economy. We show that what matters most for growth and development is a well-functioning innovation system and good governance.