Understanding Differential Economic Performance (DEP) at the local andregional level is a key element in devising practical strategies and programmes forsustainable regional development in different contexts. This paper contributes to theunderstanding of the factors underlying persistent differences in DEP between rurallocalities. The basic hypothesis is that the DEP of rural areas can be explained by acombination of ‘tangible’ and ‘less tangible’ factors and the way in which these interactin specific national, regional and local contexts. Natural and human resources,infrastructure, economic structure and investments are together with institutions,networks and community values the most decisive factors that help to characterise DEPfor the Swedish case studies. Findings show that such factors not only define the differentopportunities and constraints for local development, but also illustrate how effective thelocal and regional system is in tapping into resources and opportunities and inameliorating constraints. This sheds light on the importance of taking a broaderperspective regarding policies towards regional development, making them much morefocused on contextual and environmental aspects than uni-faceted, sectoral measures. Thepaper also provides a discussion of the implications of the results for policy and gives anaccount of new research questions for future studies.