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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

Listed author(s):
  • Peter Simmons
  • Yuanyuan Xie

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: https://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
Handle: RePEc:yor:yorken:13/28
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Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom

Phone: (0)1904 323776
Web page: https://www.york.ac.uk/economics/
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  1. 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.
  2. I-Ling Shen & Frédéric Docquier & Hillel Rapoport, 2010. "Remittances and inequality: a dynamic migration model," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 8(2), pages 197-220, June.
  3. Daniela Federici & Marilena Giannetti, 2010. "Temporary Migration and Foreign Direct Investment," Open Economies Review, Springer, vol. 21(2), pages 293-308, April.
  4. Dustmann, Christian & Kirchkamp, Oliver, 2002. "The optimal migration duration and activity choice after re-migration," Journal of Development Economics, Elsevier, vol. 67(2), pages 351-372, April.
  5. Guangjie Ning, 2008. "Wage forming mechanism in the market transitional process of China (1993–2005): Evidence from the provincial panel data," Psychometrika, Springer;The Psychometric Society, vol. 3(2), pages 312-326, June.
  6. Ruge-Murcia, Francisco J., 2007. "Methods to estimate dynamic stochastic general equilibrium models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(8), pages 2599-2636, August.
  7. 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.
  8. Kugler, Maurice & Rapoport, Hillel, 2007. "International labor and capital flows: Complements or substitutes?," Economics Letters, Elsevier, vol. 94(2), pages 155-162, February.
  9. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
  10. 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.
  11. 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.
  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. 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).
  14. George J. Borjas, 2003. "The Labor Demand Curve is Downward Sloping: Reexamining the Impact of Immigration on the Labor Market," NBER Working Papers 9755, National Bureau of Economic Research, Inc.
  15. Hisham Foad, 2012. "FDI and immigration: a regional analysis," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(1), pages 237-259, August.
  16. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-142, March.
  17. 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, Oxford University Press, vol. 118(4), pages 1335-1374.
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