We design a conceptual framework for linking two approaches: the literature on absorptive capacity and the literature on spatial knowledge spillovers. Regions produce new knowledge, but only part of it is efficiently adopted in the economy; the share of efficiently adopted technology depends on territorial capital. Our data set is based on a panel of European regions over the period 1999-2005, combining data from EUROSTAT and the European Values Study (EVS); we test the hypothesis that insufficient levels of territorial capital hamper the capability of regions to grasp and fully exploit new knowledge. Results show that a lower regional absorptive capacity increases knowledge spillovers towards surrounding areas, hampering the regions’ capability to understand, decode and efficiently exploit new knowledge, both locally produced and originating from outside. Classification-JEL: O33, R11 Keywords: Absorptive capacity, knowledge spillovers, total factor productivity, spatial econometrics File-Url: https://papers.tinbergen.nl/08119.pdf File-Format: application/pdf File-Size: 2872440 bytes Handle: RePEc:tin:wpaper:20080119