New New Economic Geography And The Capital Flow: Theory And Practice

For a long time,globalization comes at the instantly strengthening connection in trade,which brings the spring up of New New Economic Geography analyzing quantitatively on the interactions between goods,labor and even technology market among multiple regions.But during the recent three decades,global capital market is experiencing a huge revolution,with sudden booming in bilateral FDI flows,which cannot be explained or quantitatively assessed by existing theoretical framework.This dissertation establishes a multi-region dynamic general equilibrium model with inter-temporal and bilateral intra-temporal capital flows,providing significant supplement for the quantitative analysis framework on capital flows in New New Economic Geography.In the model,we prove that the bilateral capital flows positively correlate with the deposit interest rate in destination but negatively correlate with capital flow friction.Even though the return of each investment may fluctuate,the average returns from allocating capital among regions display parity in equilibrium by adjusting the portfolio decision.At steady state,the deposit and loan interest rates of regions show disparity due to the existence of capital flow friction.Meanwhile,we put forward the existence and uniqueness condition on convergent path for our dynamic general equilibrium model.Under regularity parameter conditions,a unique convergent path exists.Then we study the quantitative performance of our model and revisit two important questions on gains of trade and dynamic utility gain.We prove that in our model with capital flows,besides home trade shares,capital outflow shares and relative working force ratios help to proxy gains of trade as well,adjusting the quantitative estimation on policies regarding trade,migration and technology.Numerical simulations follow to show that our model indeed allows for extra dynamic gains along transition path,only in a much restricted scale.Meanwhile,this dissertation collects and cleans the bilateral FDI flow and stock data among 42 main countries between 2001 and 2012,and proposes a structural estimation method for bilateral capital flow frictions based on our model above.Together with other data regarding economic fundamentals,we calibrate the bilateral trade and capital flow friction among sample countries during that time window.It turns out that China and US share the highest production efficiencies and lowest import barriers.Main developing countries are experiencing production efficiency improvement,while main developed countries keep heading to the opposite direction.On top of that,main developed countries also seem to build up the import barriers.And not surprisingly,the main developing countries are removing capital inflow barriers with relatively higher benchmark interest rates but main developed ones are strengthening barriers with lower rates.Also,the capital flow frictions within Eurozone are lower relative to other countries.