Factor Mobility, Industrial Transfer And Economic Growth

The spatial flowing of factors and inter-regional transfer of industries is an intensive and spatially optimizing mode of growth. How to optimize the economic space and to achieve rapid economic growth through the rational flow of factors and industries has become one of the most concerned questions in both political and academic circles. Traditional ideas of spatial optimization told us that the free flow of factors, products and industries could promote the welfare level of the whole system and subsystems. And the new growth theory which emphasizes economies of scale and knowledge diffusion directly proved that spatial optimization can promote long-term growth rate and bring about dynamic benefits. Cases in point are that the EU countries have benefited from the free flow of factors among them, Japan and the "Four Little Dragons of Asia" have achieved their economic take-off successively through trade liberalization strategy, and the free flow of industries between China and the other countries has created the "Chinese Miracle" in recent years. All those examples have fully illustrated the facilitating function of spatial optimization towards economic growth. Countries and regions that implemented local protectionism (Lin Yi-fu, etc., 1999) have not only failed to achieve their aspirations of rapid economic development, but also lowered the efficiency of the allocation of resources, slowed the economic growth, and aggravated their domestic conflicts.Under the Dixit-Stiglitz framework, this paper developed a series of general equilibrium models of two regions and four departments with new features of the Neo-classical Economics and the New Economic Geography and then, based on these models, analyzed the impacts of single-factor labor migration, two elements' flow of capital and labor, and industrial spatial transfer on macroeconomic variables and economic growth. The paper established the theory of space optimization, originated a space optimization policy and explained the impacts of the spatial flow of factors and industries on various economic variables such as economic growth. Meanwhile, it analyzed the endogenous specialization before and after the spatial dynamic general equilibrium of factors and industries, as well as the dynamic relationship between economic variables under the general equilibrium. It also gave empirical demonstration to explain the impact of factor flow between China's eastern coastal regions and inland regions on macroeconomic variables such as economic growth.The study finds that labor, capital and industry flow in the same direction under increasing scale returns. Considering that the labor, capital and industry in reality are generally convergent, the current economy follows the law of increasing scale returns. Under increasing returns, factors flow can improve its return rate in those developed areas while reduce it in less developed areas. And also, factors flow can stimulate the developed areas to update and upgrade their production technology, but result in further backwardness in under-developed areas. For those developed areas, factors flow under increasing scale returns can not only ensure their output growth by increasing inputs, but also achieve greater increase in output by improving the production function through technological upgrading. Therefore, factors flow will inevitably enhance the economic growth to a large extent in developed areas, but production of less developed regions will decrease because of reductions in factor inputs on production due to factors outflow, and the output will decline owing to the depreciation of production technology, so the factors flow will impair economic growth in the underdeveloped areas. While in reality the level of weakening economic growth by factors outflow of the less developed regions is relatively small, thus under increasing returns to scale, factors flow in one direction is most conducive to macro-economic growth. Although this kind of economic growth ensures the overall efficiency of economic systems, the inter-regional imbalances will be further expanded. China's empirical conclusions about coastal and inland areas found that Chinese capital flow and labor flow are obviously in the same direction. The coastal provinces and the municipalities directly under the jurisdiction of the Central Government are the converging places of capital and labor, and the inland provinces, autonomous regions and municipalities are the outflow places of capital and labor. Therefore, the eastern coastal regions' economy growth has a substantial increasing margin, but inland regions' economic growth is quite the opposite, which has expanded the economic gap between the coastal and inland areas. The conclusion of this study tells us that under increasing returns to scale, the spatial migration of labors, the spatial flow of capitals and the spatial transfer of industries can all facilitate macro-economic growth, and the empirical test finds that the facilitating function of capital flow towards economy is stronger than that of the labor flow. This finding provides a new policy instrument in promoting economic growth by means of spatial optimization.