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Three musketeers: A dynamic model of capital inflow (FDI), the real wage rate and the net migration flow with empirical application

  • Peter Simmons
  • Yuanyuan Xie
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    This paper develops a time continuous dynamic model of a system of piecewise differential equations to study the simultaneous interactions between capital flows (FDI), the real wage rate and the net migration flow allowing for immigration, return migration and immobility. Theoretically, we claim three contributions: this paper is the first one to recognize the inherent regime shifts in migration due to fixed migration costs, the chance of getting a job and two way migration; for non-zero moving cost, there is usually an infinite number of stationary states; the elasticity of labor demand is an important factor in determining local stability and the global dynamics. Empirically, we apply our model with calibrated Cobb-Douglas production functions to estimate the dynamic adjustment speeds for 16 regions of Guangdong (a fast growing Chinese province with the highest internal migration flow in the emerging world) over 1990-2010. The results of our empirical application indicate that regions in Guangdong are heterogeneous but show positive simultaneous interactions between the three endogenous variables. Some policy implications and further research directions are also suggested.

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    File URL: http://www.york.ac.uk/media/economics/documents/discussionpapers/2013/1328.pdf
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    Paper provided by Department of Economics, University of York in its series Discussion Papers with number 13/28.

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    Date of creation: Nov 2013
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    Handle: RePEc:yor:yorken:13/28
    Contact details of provider: Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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    Web page: http://www.york.ac.uk/economics/
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    1. Hisham Foad, 2012. "FDI and immigration: a regional analysis," The Annals of Regional Science, Springer, vol. 49(1), pages 237-259, August.
    2. Ruge-Murcia, Francisco J., 2002. "Methods to Estimate Dynamic Stochastic General Equilibrium Models," University of California at San Diego, Economics Working Paper Series qt4fc8x822, Department of Economics, UC San Diego.
    3. Giulietti, Corrado & Ning, Guangjie & Zimmermann, Klaus F, 2011. "Self-employment of rural-to-urban migrants in China," CEPR Discussion Papers 8473, C.E.P.R. Discussion Papers.
    4. Dustmann, Christian & Kirchkamp, Oliver, 2000. "The Optimal Migration Duration and Activity Choice after Re-migration," Sonderforschungsbereich 504 Publications 00-39, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    5. Commander, Simon & Chanda, Rupa & Kangasniemi, Mari & Winters, L. Alan, 2004. "Must Skilled Migration Be a Brain Drain? Evidence from the Indian Software Industry," IZA Discussion Papers 1422, Institute for the Study of Labor (IZA).
    6. George J. Borjas, 2003. "The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1335-1374, November.
    7. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
    8. Frederic, DOCQUIER & Hillel, RAPOPORT & I-Leng Shen, 2007. "Remittances and inequality : A dynamic migration model," Discussion Papers (ECON - Département des Sciences Economiques) 2007003, Université catholique de Louvain, Département des Sciences Economiques.
    9. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
    10. Matthieu Crozet, 2004. "Do migrants follow market potentials? An estimation of a new economic geography model," Journal of Economic Geography, Oxford University Press, vol. 4(4), pages 439-458, August.
    11. Guangjie Ning, 2008. "Wage forming mechanism in the market transitional process of China (1993–2005): Evidence from the provincial panel data," Psychometrika, Springer, vol. 3(2), pages 312-326, June.
    12. Christian Dustmann & Yoram Weiss, 2007. "Return Migration: Theory and Empirical Evidence from the UK," British Journal of Industrial Relations, London School of Economics, vol. 45(2), pages 236-256, 06.
    13. Lee, Young, 1999. "Wages and Employment in China's SOEs, 1980-1994: Corporatization, Market Development, and Insider Forces," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 702-729, December.
    14. Kugler, Maurice & Rapoport, Hillel, 2007. "International labor and capital flows: Complements or substitutes?," Economics Letters, Elsevier, vol. 94(2), pages 155-162, February.
    15. Buch, Claudia M. & Kleinert, Jorn & Toubal, Farid, 2006. "Where enterprises lead, people follow? Links between migration and FDI in Germany," European Economic Review, Elsevier, vol. 50(8), pages 2017-2036, November.
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