We compare the effect of external obstacles and internal capabilities on firms’ innovation and productivity in Patagonia versus the rest of the country for 2014-2016. Our hypothesis is that the regional context influences those effects. We find that in that region external obstacles affect, not only the decisions to invest in innovation, as it happens nationally, but also its intensity. Internal capabilities are lower than in the rest of the country but have a greater impact to encourage innovation decisions. These findings suggest that the regional dimension should be considered in innovation policy.