The key to the success of Italian industrial districts lies in their flexibility and innovation. Yet except for a few rare cases, investments in R&D have been very limited. The paper explores this apparent conundrum. Even though there are alternative methods to introduce innovations (for example, the supply of machinery), it still remains difficult, from a traditional point of view, to adequately explain the widespread creation of original knowledge that is no doubt present in these enclaves, and that is able to bring about effective product and process innovation in order to maintain competitiveness. By using evolutionary theories and numerous empirical examples, the paper outlines the mechanisms for generating knowledge, the learning patterns and the specialisation processes that appear to characterise the most dynamic Italian districts.
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