In this article we analyse the effect of factors external and internal to the firm, on product innovation novelty, and how this effect varies by industry. We estimate three econometric models to determine the individual effects of these factors, their joint explanatory power and the effects of interactions among them. The analysis is based on a sample of 6094 manufacturing firms, taken from the Spanish Survey of Technological Innovation 2000. The results indicate that the firm's technological competences, derived from in-house R&D, are the main determinant of product innovation. They also suggest that in the presence of high levels of such competences, the technological opportunities deriving from non-industry agents become less important as determinants of innovation. We show that the determinants of innovation vary depending on the industrial sector and the degree of novelty of the product developed.
