This book elaborates a new path dependent and localized growth theory based upon knowledge externalities by making two important contributions. Firstly, it elaborates the hypothesis that total factor productivity growth stems from pecuniary knowledge externalities that consist in the access to localized external knowledge, at costs that are below equilibrium levels. Secondly, it implements the economic analysis of complex dynamic systems with a novel approach to understanding the role of knowledge interactions and knowledge governance mechanisms in the generation of new technological knowledge within economic systems characterized by webs of interdependence.This approach provides a consistent interpretation of the puzzling experience of Italian economic growth in the years 1950-1992, which consisted of very low levels of expenditure in R&D yet high levels of productivity growth. The Italian case is analysed as an original distributed innovation system where knowledge externalities were generated by intensive interactions-cum-transactions between upstream producers and downstream users of capital goods, and exploited through the introduction of capital-intensive process innovations.This valuable book illustrates a new endogenous path dependent growth theory based on localized knowledge interactions, knowledge externalities and knowledge governance. In so doing it makes a major step forward in the analysis of the economic of complexity of technological change. As such, it will be required reading for academics, researchers and advanced students of innovation and growth economics, industrial organization, and economic and business history.