We disentangle the demand and productivity effects of public policy on industrial location (Commendatore, Kubin and Petraglia 2008, 2009) in a Footloose Capital model (Martin and Rogers 1995) with publicly financed R&D activities. Results are obtained under alternative assumptions on the intensity of knowledge spillovers (KS). New ideas generated in the R&D sector are alternatively assumed to be beneficial to all firms regardless of their location (per-fectly global KS), to local firms only (perfectly local KS) or to local firms to a higher extent than to foreign ones (partially local KS). Re-sults on both local dynamics around the interior and boundary fixed points and their global stability properties are obtained.