<p>This paper simultaneously estimates sectoral trade elasticities among European regions and effect that the degree of embeddedness has on regional productivity. Our approach combines a production-based model with the proxy variable method, while accounting for spatial spillover effects related to technology diffusion. We find evidence of heterogeneity in regional trade elasticities and show that productivity spillovers are positive and significant. Additionally, our results reveal that embeddedness has a positive and significant effect, supporting the existence of agglomeration and proximity externalities during the period considered. These findings offer valuable insights for policymakers, providing the basis for designing regional development and sectoral strategies. In a globalized world, where production is more fragmented and regions are increasingly becoming more specialized and interconnected, understanding regional trade dynamics and responses is essential for boosting regional resilience.</p>