This article analyses the history of local production systems in the Third Italy (i.e. industrial
districts) in order to identify the factors that help these systems to move dynamically towards new
and more advanced stages of development. Using the 1990 seminal work of Brusco on the subject,
this paper goes through the stages that had been identified, such as craft production, wider
industrialisation through large firms, atomisation of production and growth of small-size units (i.e. Mark I), new routes to innovation and globalisation (Mark II). A holistic theoretical framework is presented, that permits to deepen the comprehension of the subject. It presents a complete description of the causal levels that intervened in the process over the second half of the past century. Economic, policy and social causal levels are identified and presented as unescapable keys to produce the expected change in local systems. These factors work altogether in an interdependent way in order to produce the structural and cumulative changes that explain the effective development process at the local level. As a conclusion, this paper suggests the ways in which this analysis can influence the policy schemes that are being applied in various local contexts at different development stages.