Improving productivity performance is essential for achieving regional economic sustainability. With the advent of the network society, regional economic agents have benefited not only from local, within-region interactions but also from external, out-of-region economies. However, it remains unclear whether localized external economies or spillovers of externalities through interregional networks are more significant in enhancing productivity performance. This chapter examines the relationships between productivity performance and geographical externalities from an industry perspective using regional economic data for Japan and employs a dynamic total factor productivity function approach. It also assesses the impact of improvements in high-quality transportation infrastructure on productivity catch-up. The results reveal the long-run effects of interregional networks on industry productivity performance. Furthermore, they indicate that, as a geographical externality, the “borrowed size” effect contributes significantly to productivity improvements in both manufacturing and nomanufacturing industries. These findings suggest that enhancing both high-quality transportation infrastructure and interregional transportation networks is likely to improve industry productivity performance.