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Chapter 10, "Diversification patterns at the regional level and their relationship to regional knowledge capabilities: differences between advanced and less favoured regions" (Andreas Reinstaller and Fabian Unterlass) analyses the relationship between regional capabilities to generate and apply knowledge and changes in industrial specialisation in advanced and less-favoured regions. The results suggest that local technological search and learning reinforce existing specialisation patterns, whereas educational investments weaken path dependence. They reduce the importance of local capabilities to generate comparative advantages and allow tapping into new technologies or industries fostering diversification. Regions with higher educational attainment levels tend also to be more specialised in high-end markets. The educational system therefore plays a key role in diversification processes and should be a constitutive element of S3 policies.