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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

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  • Peter Simmons
  • Yuanyuan Xie

Abstract

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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    More about this item

    Keywords

    Dynamic migration; Regime shifts; Local stability; Dynamic adjustment speeds;
    All these keywords.

    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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