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This article shows the evolution of the aerospace sector in Italy using archival sources which have not yet been fully explored. The sector experienced a shift from the state ownership model to a demand-side industrial policy. The historical case of how Alenia Spazio evolved into an innovative firm thanks to the Italian Space Agency’s demand-driven industrial policy contributes to the article’s argument that a proper mix of government-business networks and technology-led institutional arrangements spared the Italian space sector from the country’s general economic decline during the late twentieth and early twenty-first centuries. The analysis sheds light on the role of technology, institutions, and economic integration in the evolution of the space sector and the Italian form of capitalism at the end of the past century.