Knowledge drives the growth of nations and regions in a competitive space-economy. Hence, we would expect a strong correlation between investments in R&D, knowledge and learning processes, on the one hand, and productivity increases, on the other. However, the empirical evidence shows consistent discrepancies between knowledge inputs and economic performance across geographical units. This paper addresses this intriguing issue at the regional level, by highlighting theoretically and empirically the strategic importance played by intangible elements as part of "territorial capital" in mediating between knowledge production and regional growth. The main proposition of the paper, subject to empirical testing, is that intangible elements as part of territorial capital magnify the contribution of knowledge by determining the formation of increasing returns to knowledge exploitation. © 2010 The Authors. Tijdschrift voor Economische en Sociale Geografie © 2010 Royal Dutch Geographical Society KNAG.