Exploitation and exploration are strongly complementary and both essential for successful innovation, organizational learning, and even organizational survival, although the simultaneously pursuit of both appears to be very difficult. In the literature, several studies focus on the issue of balancing exploration and exploitation at the firm level, while poor attention has been paid to firms’ systems at the territorial level, such as geographical clusters. Based on this premise, the present paper tries to cover this gap by evaluating the effects of the exploration and exploitation on the economic and innovation performances of local systems of firms. An econometric analysis on the 103 Italian Provinces over the period 1999-2015 was performed. Main results show that Italian firms operating in the same province perform on average more exploration in unrelated technological domains than in the case of the same technological area. This behavior is not beneficial in terms of economic performance in the short run, but is conducive of innovation and employment. In the same technological domain, the exploitation of existing knowledge is prevailing among local systems of firms and affects negatively the employment. Finally, the paper aims to contribute theoretically and methodologically, to the scientific debate about the application of exploration-exploitation framework beyond the boundaries of single firms. In particular, results could support i) policy-makers in defining proper and customized initiatives and measures able to boost local economic and innovation growth; ii) academics and scholars in developing comparative studies among diverse geographical contexts, benchmarking analysis and best practices identification at provincial, regional and national level.