Publication Type

PhD Dissertation

Version

publishedVersion

Publication Date

5-2025

Abstract

This dissertation consists of two chapters that study the China’s spatial economy in the context of heterogenous skill workers, local capital investment, and foreign direct investment (FDI). The first chapter studies how production factor accumulations in space respond to economic shocks or events, and how those responses modify the aggregate and distributional impacts of shocks. To examine their responses and implications, we develop a dynamic spatial model that incorporates capital accumulation and skill acquisition. Focusing on China’s trade liberalization and infrastructure expansion in the early 2000s, we show that allowing for capital accumulation amplifies welfare gains and intensifies between-skill inequality, while skill acquisition attenuates impacts on skill premiums by balancing skill supply in response to shocks. Most importantly, our findings highlight the critical role of capital-skill interactions in shaping aggregate and spatial impacts, suggesting that both capital and skill adjustments are essential to understanding the full impacts of economic shocks/events on welfare and inequality. The second chapter studies the spatial general equilibrium impacts of inward FDI on the host country, by developing a dynamic spatial model with cross-border investment and FDI productivity spillover. Focusing on China, we explicitly estimate FDI barriers at the prefectural level, FDI elasticity, and FDI knowledge spillover elasticity. We show that a hypothetical capital market decoupling in 2000 between China and the rest of the world (ROW) has a substantial negative impact on China’s welfare due to the loss of productivity gains from FDI, with coastal cities suffering more. But the impacts of another decoupling in 2020 are negligible, as in this case China has already learnt sufficient knowledge from the ROW through FDI between 2000-2020. Modelling internal geography also has rich implications in explaining FDI impacts: internal trade and migration tend to work as a buffer to alleviate the negative impacts of capital market decoupling. Finally, the model suggests a strong distributional impact of inward FDI and has policy i implications. A FDI liberalization reform improves total real income in China by 5 percent, but reduces domestic investors’ income by 13 percent, as inward FDI crowds out domestic investment.

Keywords

Spatial Economy, Capital Accumulation, Human Capital, Foreign Direct Investment

Degree Awarded

PhD in Economics

Discipline

International Economics

Supervisor(s)

MA, Lin

First Page

1

Last Page

122

Publisher

Singapore Management University

City or Country

Singapore

Copyright Owner and License

Author

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