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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


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.

Suggested Citation

  • Peter Simmons & Yuanyuan Xie, 2013. "Three musketeers: A dynamic model of capital inflow (FDI), the real wage rate and the net migration flow with empirical application," Discussion Papers 13/28, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:13/28

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    References listed on IDEAS

    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.
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    6. 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.
    7. 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, June.
    8. Daniela Federici & Marilena Giannetti, 2010. "Temporary Migration and Foreign Direct Investment," Open Economies Review, Springer, vol. 21(2), pages 293-308, April.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. Kugler, Maurice & Rapoport, Hillel, 2007. "International labor and capital flows: Complements or substitutes?," Economics Letters, Elsevier, vol. 94(2), pages 155-162, February.
    16. 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).
    17. 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.
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    More about this item


    Dynamic migration; Regime shifts; Local stability; Dynamic adjustment speeds;

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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