Since asked and answered by the same person, I'll add a npm link as an alternative.
from docs:
This is handy for installing your own stuff, so that you can work on it and test it iteratively without having to continually rebuild.
cd ~/projects/node-bloggy # go into the dir of your main project
npm link ../node-redis # link the dir of your dependency
[Edit] As of NPM 2.0, you can declare local dependencies in package.json
"dependencies": {
"bar": "file:../foo/bar"
}