SCALE ECONOMIES,REGIONAL EXTERNALITIES,AND THE POSSIBILITY OF UNEVEN REGIONAL DEVELOPMENT*

ABSTRACT. This paper presents a model of regional development which attempts to explain differing patterns of growth in two regions. The model is an extension of Krugman's model of uneven development, but it incorporates not only scale economies within each region but also regional externalities across the regions. Depending on relative magnitudes of net scale economies of the two regions, the model entails different regional development patterns: uneven development, stable or joint development, or a mix of the two. The novel feature of the present model is that different regional development patterns can be explained within the same analytical framework.