IDEAS home Printed from
   My bibliography  Save this paper

Regional Externalities in the Dynamic System of Three Regions


  • Jaakko Simonen



This study presents theoretical models of the role of externalities across two and three dimensional regional economy. Two decades ago Krugman (1981) developed a model of uneven regional development. He showed that initial discrepancy in capital-labour ratios of the two adjacent, competing regions will cumulate over time, and will inevitably lead to the division into the capital-rich and capital-poor regions. Kubo (1995) presented an extension to Krugman?s model by incorporating not only scale economies within the regions but also regional externalities across regions. His model provided an explanation for different regional development patterns: uneven, joint and the mix of these two. In this study Kubo?s analysis is extended to study the dynamic properties of the development of the three regions instead of two regions. We characterise dynamics and the stability of steady states in the three-region model. In particular, we show under what conditions steady state is unique, and if there can be multiple steady states. We show that condition for even regional development in Kubo?s model, i.e. regional externalities are stronger than scale economies in each regions, is necessary, but not a sufficient condition for even regional development in a case of three region. Our study sheds light on e.g. the regional development in Northern Finland. A few years ago the idea of the regional network of Northern Finland was launched. That idea was meant to spread the economic growth of the city of Oulu - technologically advanced core region - to smaller peripheral areas. Models of this study offer potentially interesting frameworks to analyse different regional development patterns. Furthermore, our model can be used to analyse, how the domination of core region affects the growth of peripheral regions and what kind of regional policy should be implemented to promote economic growth in the periphery. Keywords: Scale economies, regional externalities, regional development JEL classification: C61, R12

Suggested Citation

  • Jaakko Simonen, 2003. "Regional Externalities in the Dynamic System of Three Regions," ERSA conference papers ersa03p430, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa03p430

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa03p430. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.