If you mean you want to create a file within the application folder (or a folder below that) that it is a very bad idea. Access to Application folders is restricted, and likely to become more so. In addition, it is more likely that a file will be backed up if it is under a "normal" data folder.
Consider using a different folder altogether - this can help:
Where should I store my data?[
^]
The connection string can then reference that file (preferably via a config file of some sort, depending on how you do your config files)