Factor Flows, Factor Scarcity And International Differences In Earnings

Since 1970 s, the rapid development of foreign direct investment has changed the basic operation of the world economy from the micro aspects. The integration of countries’ economies has penetrated into the whole process of economic activities. The essence of international direct investment is the international mobility of a series of production factors which are carried in capital, and it results in the “international specialization of factors cooperation”(zhang You-wen, 2013). Different countries’ factors of production work together to achieve the production process in the inflow country. A country’s export products are no longer entirely made by domestic factors of production, but have become the output of multi-countries’ factors. The shift from international division of labor to factors cooperation specialization result in that only from the source of input could we clarify a country’s gains of trade and investment. The gains from investment and trade are the factors earnings of the country from FDI and exports.However, the related researches due the international income differences to the monopoly and unequal condition of capitalist, market power or technological gap and progress. There is not any analysis of international gains differences is based on the mobility of factors or from the perspective of production factors. Given this, starting from the analysis of the basic rules of factor mobility the thesis demonstrates the scarcity of factors decides the product premium capacity, thus determines international differences in direct investment and trade income, and it carried on the corresponding empirical verification with a panel data model. The thesis content is organized as follows:Firstly, the introduction outlines the main questions the thesis attempts to address, the content and the main innovations.Chapter 1 provides a general picture of related literature. The chapter summarizes relevant researches on gains differences of direct investment and international trade and gives the corresponding review.Chapter 2 analyses the rules, reasons and influences of international mobility of factors, and explains the formation mechanism of "international specialization of factors cooperation ". This is the premise to discuss factors scarcity and international income differences.Then based on the principles of economics,chapter 3 demonstrates factor scarcity determines the international differences in gains of direct investment and trade with mathematical model. The chapter clarifies that advanced factors mainly belong to developed countries, while the primary factors are distributed in developing countries, and the production factors scarcity decides that the premium ability of factors is different, thus it determines the benefits of the countries joining in the cooperation.Chapter 4 gives an empirical test on factors scarcity determines international difference of direct investment gains with panel data model. Respectively by the BOP data and American multi-national corporation’s micro data of 40 countries the chapter explains the positive relationship between the factors scarcity and international difference of direct investment income. And based on the separation of the domestic and foreign income with the micro data of branches of American multinational corporations in 40 countries, chapter 4 constructs factors scarcity index to reflect the scarcity degree of countries’ advanced factors, and gives an empirical test on the conclusion of chapter 3 by panel data model. The result shows that there is significant positive correlation between the factors scarcity and gains ratio of outflow and inflow country and the coefficients go upward over time.Chapter 5 to 6 analyzes the relationship between factors scarcity and gains from trade theoretically and empirically. Chapter 5 demonstrates that factors scarcity determines the premium of export products and gains from trade through export products quality and the number of firms. There is an inverse relationship between export products premium and advanced factor scarcity, and the premium level of export products directly affects a country’s trade gains. Chapter 6 gives an empirical analysis to the conclusion of chapter 5 and the result shows that the scarcity of advanced factors rise 1% will lead gains from trade decreased by 0.853%.Chapter 7 discusses the challenges of the rise of factors prices to China’s attracting FDI and exports and gives some implications to China’ s open-door policies based on the influence of factors scarcity to international income differences. In order to enhance the level of opening up and increase the gains from opening, it is significant to cultivate the advanced factors, enhance the level of market liberalization and promote the development of general trade for China in the future.The last part of the thesis is the conclusion and enlightenment.