Innovative capacity of firms has traditionally been explained through intra-firm characteristics. In the more recent literature, much emphasis has been put on determinants that are external to the firm. These external factors, called knowledge spillovers, refer to the positive externalities that firms receive in terms of knowledge from the environment in which they operate. Geographers and industrial economists underline the importance of knowledge spillovers. As the paper underlines, an important difference exists between the approach of knowledge spillover and that of socialized processes of local knowledge creation developed by regional economists; while in the former, the mere probability of contacts explains local knowledge transfer, in the latter, the channels through which knowledge spills over a local area are clearly identified in the relational capital of the area. Relational capital is defined as all relationships-market relationships, power relationships and cooperation established between firms, institutions and people, which stem from a strong sense of belonging and a highly developed capacity of cooperation typical of culturally similar people and institutions. The main aims of the paper are twofold. The first is to underline the major conceptual differences between industrial and regional economists. The second is to provide a quantitative empirical approach, using econometric techniques, to verify the existence and importance of relational capital on the innovation activity of firms. Proxies are found to represent the channels through which local knowledge develops at the local level and therefore indirectly of relational capital. The different regional, sectoral and firm characteristics are also analysed to understand whether they influence the role relational capital has on innovation. It is indeed reasonable to expect that relational capital will play a different role in different regional, sectoral and firm's contexts.
