The importance of knowledge spillovers for achieving innovation and economic growth is widely recognised. It is not straightforward which type of spillovers is most effective: intra-sectoral spillovers or inter-sectoral spillovers. We investigated this controversy using a model of regional growth. The model also deals with the impact of local competition on innovation and growth. The model is estimated using sectoral data for 40 Dutch regions. We found that local competition is important particularly for economic growth in industry sectors (manufacturing and construction), while diversity, a proxy for inter-sectoral spillovers, is important particularly for growth in service sectors. We found no effect for specialisation (a proxy for intra-sectoral spillovers).