How should we think of the role of regions in relationto the global economy? Theory has surprising gapswhen it comes to building a unified vision of thesetwo scales of development. Two contributions to sucha vision are proposed in this article. First, the relationshipbetween geographic concentration andthe regional economic specialization it underpinsand globalization should be theorized as a dynamicprocess. Standard location and trade theory is notadequate for this task; instead, the dynamic relationshipcan be captured through growth theory. But capturingthis dynamic relationship requires correctinggrowth theory to separate its local and its globalcomponents, which are, respectively, Marshall-Arrow and Romer externalities. Second, the missingelement in all theories of geographic concentrationand locally specialized development is an elementlabeled “context” here. A theory of context, in turn,raises important new questions about the dynamicwelfare and developmental effects of contemporaryprocesses of fragmenting and relocating production t a global scale.