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Knowledge intensive services (KIS) have grown rapidly across Europe in recent years and are often regarded as critical to economic growth and knowledge diffusion. This paper focuses on the factors determining spatial variations in the growth of these services. Combining insights from the regional innovation systems approach and modern growth theory, it is argued that local economic diversity may be beneficial to the growth of KIS. An empirical study of Great Britain over the period 1991–2002 reveals significant regional variations, with rapid growth occurring in a central cluster and major urban areas. The results of an empirical model provide support for the positive impact of diversity on employment growth but no evidence of a positive effect of sector specialisation. From a policy perspective, the analysis suggests that greater attention needs to be devoted to enhancing economic diversity and understanding sector specific effects. [ABSTRACT FROM AUTHOR]