The roles and responsibilities of local governments are changing. Historically, the expectation of service delivery was focused on areas such as garbage collection, street paving, snow clearing, as well as drinking water and wastewater services. In more recent time, there has been a downloading of new roles and responsibilities to the local level that has been historically absent, such as generating new opportunities for economic development in their communities. Rural local governments, in particular, experience challenges in meeting these expectations, as they have limited fiscal and human resource capacity compared to urban local governments. The focus of this dissertation is centered on understanding how rural local governments can facilitate economic development in their communities in light of limited capacity and resources to do so. Findings from this doctoral study present a conceptual model, generated through the implementation of a systematic literature review from two databases, to consider when conducting economic development research with local governments. In addition, through conducting and analyzing semi-structured interviews, this study identified various ways that local governments build capacity; namely, through the establishment of key partnerships, entrepreneurial activities were strategically pursued to diversify their economies. These findings are relevant, as it contributes to a gap in literature with respect to economic development research with rural local governments, as well as potential policy and practice implications for rural Newfoundland and Labrador and beyond.