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This paper discusses the role and effects of regional knowledge systems on traditional industries, specifically the steel industry in the regions of Greater Western Sydney and the Hunter.

There have been two major approaches to industry innovation both at the national and regional level. One approach takes the view that clusters and networks are the way to build new industries. The positive role played by universities in assisting such transformation seems to be related to their geographical proximity with the firms in question. Knowledge creation is embedded in a region’s distinct institutional endowment, so a firm’s competitiveness is not isolated from regional capabilities in terms of knowledge creation.

Another approach acknowledges that major manufacturing regions in industrial countries experienced crises during the 1970s largely caused by technological innovation and the globalisation of markets and distribution systems as well as the oil crisis. These industries nonetheless remain critical to the economic development of most OECD countries, including Australia (OECD, 1993, 1996, 1997, 1999). All these countries are seeking to renew the traditional industries dominant in many regions. More specifically, they are seeking to assist their transformation through the creation and use of new knowledge.

This paper explores the effects of territorial systems on the knowledge and innovation processes of industries traditionally regarded as low-knowledge intensive, in this case the steel industry. The two regions chosen, The Hunter and Greater Western Sydney, both have a regional university, TAFE and other knowledge institutions from where transfer of innovation can be analysed as a potential core element of their territorial innovation system.

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