This book provides an analytical study of innovation in small enterprises and its role in the dynamics of local development in lagging areas. It also evaluates the effect of the local environment on the innovative potential of small firms.(?) The empirical work is based on firm level and regional economic data collected in a set of contrasting areas drawn from seven countries, namely Belgium, France, Ireland, Italy, Poland, Portugal, and the UK. The major challenge in this research was to formulate models reflecting not only the firms? capacity to innovate but also the interdependencies that exist between the technological changes occurring in small firms and their different local contexts.