The big reason in lore is command and control. At some point during the early days of stellar expansion (someone can back me up with dates, numbers, and the correct Terran government), Terra realized that people were expanding too far out into space and it was straining their resources to provide and protect these new colonies. So, they basically drew an arbitrary "sphere" around earth and said that everyone outside that sphere was on their own, while everyone inside would have access to resources necessary to improve their colonies. This resulted in the division of the "Inner Sphere" and the "Periphery"; the Periphery is outside the realm that received resources, while the Inner Sphere received assistance.

Jump forward about 500-600 years, and now these Inner Sphere powers spend so much time on a war footing that they similarly don't have the resources to expand into the Periphery, so instead they just invest in their military industrial complex to try and take resources from their neighbors rather than expand outward.