Abstract: Against the backdrop of economic globalization, the flow-based economy has become the dominant theme of the era, driving cities of different scales to interact and respond, intertwining into complex urban network structures, leading to divergent development of urban growth and shrinkage. In light of this, based on corporate headquarters and branch data, this study takes 36 prefecture-level cities (including autonomous prefectures or leagues) in Northeast China during the period 2015–2022 as sample units and employs a fixed-effects panel model to conduct theoretical exploration and empirical verification analysis on the impact mechanism of network externalities on the divergent development of urban growth and shrinkage. The results indicate that: 1) urban growth and shrinkage in Northeast China exhibit significant divergent characteristics, with urban shrinkage intensifying over time; 2) the network connectivity among cities in Northeast China, centered on corporate headquarters and branches, has been strengthening, resulting in a city network structure with prominent core-periphery features; 3) network externalities drive the divergent development of urban growth and shrinkage in Northeast China, fundamentally by influencing the aggregation capacity of urban regional development factors, thereby serving as a ‘foundational allocation’ mechanism for development factors. These findings suggest that network externalities may offer a new research paradigm for analyzing the mechanisms underlying urban shrinkage and its divergent development relative to urban growth.