Urban areas of prefectural government cities in non-metropolitan areas expanded continuously after World War II. Cities required outer areas to have various functions, such as residential, industrial, and logistics, in order to sustain development. Conversely, populations have been declining, with urban areas shrinking recently. The national government and some prefectural government cities introduced Compact City policies to reduce administrative costs and to revitalize city centers. Their outer areas have now become frontiers and focal points of areal dynamics. To illustrate these dynamics, the Morioka urban area is selected as a study area. Morioka City is the prefectural capital of Iwate and is the core of its economic, administrative, and cultural functions. The territory of the Morioka municipality is small and is constrained by physical features such as the Kitakami-gawa river and mountains. After World War II, the Morioka urban area spread beyond the territory of Morioka City. Besides, space for the urban functions mentioned above was required. Morioka City had to search for such space outside its territory. Tonan village, south of Morioka City, chose to accept an amalgamation offer from Morioka City in 1992. In return, Morioka City invested heavily in Tonan after the amalgamation. Consequently, the urban infrastructure (such as sewage and land readjustment projects) of Tonan developed rapidly, and Morioka was able to utilize areas for development, such as the area surrounding the Morioka-Minami IC. Tonan now plays a more important role in the economic and social functions of Morioka's urban area. Takizawa village, north of Morioka City, rejected Morioka's proposal for amalgamation in 2004 and decided to become an independent city. The social-economic status of Takizawa inhabitants is relatively low, and its industries have been inactive despite rapid population growth. Therefore, the tax base of Takizawa is not strong. The most important reason for rejecting amalgamation was minimal prospects for public investment from Morioka City due to fiscal austerity, partly caused by heavy investment in Tonan. The case of Takizawa suggests deepening political fragmentation in prefectural government city urban areas such as Morioka. Not only affluent neighboring municipalities, but also modest suburbs such as Takizawa are unwilling to amalgamate with prefectural governmental cities because their populations and fiscal conditions are on downward trends. This situation is leading to difficulties in executing effective policies for integrating urban areas under the Compact City policies and economic development.