Foreign Direct Investment and Unequal Regional Economic Growth in China

DGY = - βDY

Which means that if the income in a region is above the average (all region) income,
the growth rate should be below the average growth rate in order to move the regions
towards greater equality.

At increasing investment the income tend to increase too. Therefore

GY = α₀ + a₁GI

a₀ - the autonomous growth rate.

α₁ - the investment multiplier which is always supposed to be positive.

Now let us assume that the investments are attracted by rich areas then

GI = ' + 71 DY                             (3)

where

γ₀ - is the autonomous (foreign) investment growth for DY = 0, or at MGI

γ₁ - indicates the distributions of DFI due to the deviation of the region’s
income from the average income, or the region’s ability to attract increasing
investments at an increasing income level

We can now (see appendix 3) derive

DGY = α₁γ₁ DY

where

β = a₁γ₁ > 0 for γ₁ > 0

which (when γ₁ is positive) means that when investment growth is higher in rich
region’s than in poor regions then we expect growth against greater inequality,
because β will be positive.

We can now estimate (1) and (3) by Weighted Least Square where the weights are the
regions share of the total population (the prefix W in variable names is omitted to
facilitate readings.

DGI = .0000004893*DY      R² = .2045 Obs = 232

(7.74)

<<   2   3   4   5   6   7   8   >>

More intriguing information