Foreign direct investment, labor migration and interregional technology transfer in China

Foreign direct investment (FDI) plays an important role in the economic growth in China since the 1980s. Such rapid economic growth in China is not evenly spread across regions. Foreign direct investment is not distributed evenly across regions as well. The low level of technology in poor regions depresses inflow of foreign investments. Massive labor migration has flooded most Chinese cities and wealthy regions with the rapid growth of foreign direct investment in China. Institutional barriers are used to deter the migration. This study establishes three theoretical models. The first model explores the economic instrument that the Chinese government can use to alleviate the massive rural-urban migrants. It is found that city government may not use capital subsidy to achieve its goal of deterring rural labor migration. Instead, city government may be able to alleviate rural-urban migration by improving its local pubic goods. The second model explores foreign direct investment invested in poor region with interregional technology transfer from rich region to poor region. It is found that rich region would like to transfer technology to poor region because such transfer helps in improving living condition in poor region and discourage migration from poor region, but also benefits rich region as well. The third model is an extension of model one, with considering of technology spillover of foreign investment. It is found that with technology spillover, it is preferable for city government in China to use capital subsidy as an economic instrument to deter rural-urban labor migration.