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 60 British regions. A positive effect of local competition on economic growth is found for several sectors of the economy, while a positive effect of diversity (a proxy for inter-sectoral spillovers) is found only for the production sector. We found no effect for specialisation (a proxy for intra-sectoral spillovers).