Regional externalities in the dynamic system of three regions

This article presents a theoretical model of the role of intra-regional economies of scale and inter-regional externalities across a three dimensional regional economy. Kubo's (1995) two-dimensional analysis is extended to study the dynamic properties of the development of the three regions. We characterise dynamics and the stability of steady states, and show under what conditions the steady state is unique. Furthermore, we examine different regional development patterns both in cases of symmetric and asymmetric inter-regional externalities. We show that the condition for even regional development in Kubo's model, i.e., that inter-regional externalities are larger than intra-regional economies of scale in each region, is not sufficient for even regional development in a three region model. Copyright (c) 2006 the author(s). Journal compilation (c) 2006 RSAI.