Predicting Foreign Direct Investment of IC Design Firms from Taiwan to East and South China Using Lotka-Volterra Model

This work explores the inter-region investment behaviors of Integrated Circuit (IC) design industry from Taiwan to China using the amount of foreign direct investment (FDI). According to the mutual dependence among different IC design industrial locations, Lotka-Volterra model is utilized to explore the FDI interactions between South and East China. Effects of inter-regional collaborations on FDI flows into China are considered. The analysis results show that FDIs into South China for IC design industry significantly inspire the subsequent FDIs into East China, while FDIs into East China for Taiwan’s IC design industry significantly hinder the subsequent FDIs into South China. Because the supply chain along IC industry includes upstream IC design, midstream manufacturing, as well as downstream packing and testing enterprises, IC design industry has to cooperate with IC manufacturing, packaging and testing industries in the same area to form a strong IC industrial cluster. Taiwan’s IC design industry implement the largest FDI amount into East China and the second largest FDI amount into South China among the four regions: North, East, Mid-West and South China. If IC design houses undertake more FDIs in South China, those in East China are urged to incrementally implement more FDIs into East China to maintain the competitive advantages of the IC supply chain in East China. On the other hand, as the FDIs in East China rise, the FDIs in South China will successively decline since capitals have concentrated in East China. In addition, this investigation proves that the prediction of Lotka-Volterra model in FDI trends is accurate because the industrial interactions between the two regions are included. Finally, this work confirms that the FDI flows cannot reach a stable equilibrium point, so the FDI inflows into East and South China will expand in the future.

Authors:

• Bi-Huei Tsai

Keywords:

• Lotka-Volterra model
• Foreign direct investment
• Competitive
• Equilibrium analysis.

References:

[1] B. T. McCann and T. B. Folta, “Who enters, where and why? The
influence of capabilities and initial resource endowments on the location
choices of de novo enterprises,” Journal of Management, vol. 34, 2008,
pp. 532-561.
[2] Hoover, E. M. Location Theory and the Shoe and Leather Industries.
Cambridge, MA: Harvard University Press, 1937.
[3] A. Weber, Theory of the location of Industry. Chicago: University of
Chicago Press, 1909.
[4] A. Marshall, Elements of Economics of Industry. London, UK:
Macmillan, 1892.
[5] B.-H. Tsai, “Does litigation over the infringement of intellectual property
rights hinder enterprise innovation? An empirical analysis of the Taiwan
IC industry,” Issues & Studies, vol. 46, no. 2, 2010, pp.173-203.
[6] B.-H. Tsai, “Forecasting Foreign Direct Investment with Modified
Diffusion Model,” World Academy of Science, Engineering and
Technology, vol.41, pp.205-211, 2010.
[7] F. M. Bass, “A new product growth for model consumer durables,”
Management Science, vol. 15, 1969, pp.215-227.
[8] A. Kumar and P. V. Tsvetkov, “A new approach to nuclear reactor design
optimization using genetic algorithms and regression analysis,” Annals of
Nuclear Energy, vol., 2015, pp.27-35.
[9] D. E. Goldberg, Genetic Algorithms in Search, Optimization and Machine
Learning, Addison-Wesley, 1989.
[10] H. Thierry, D. Sheeren, N. Marilleau, N. Corson, M. Amalric and C.
Monteil, “From the Lotka–Volterra model to a spatialised
population-driven individual-based model, Ecological Modelling, vol.
306, 2015, pp. 287-293. [11] B.-H. Tsai, C.-S. Hsu, and B. K. R. Balachandran, “Modeling competition
between mobile and desktop personal computer LCD panels based on
segment reporting sales information,” Journal of Accounting, Auditing
and Finance, vol. 28, no. 3, 2013, pp.273–291.
[12] B.-H. Tsai and Y. Li, “2011, Modeling Competition in Global LCD TV
Industry,” Applied Economics vol.43, no. 22, 2011, pp.2969-2981.
[13] T. Modis, “Technological forecasting at the stock market.” Technology
Forecasting and Social Change, vol. 62, 1999, pp.173-202.
[14] B.-H. Tsai and Y. Li, “Cluster evolution of IC industry from Taiwan to
China,” Technological Forecasting and Social Change, vol.76, 2009,
pp.1092-1104.
[15] P.H. Leslie, “A stochastic model for studying the properties of certain
biological systems by numerical methods.” Biometrika, vol. 45, 1957,
pp.16-31.
[16] T. F. Coleman, and Y. Li, “An interior, trust region approach for
nonlinear minimization subject to bounds,” SIAM Journal on
Optimization, vol. 6, 1996, pp.418-445.
[17] T. F. Coleman, and Y. Li, “On the convergence of reflective Newton
methods for large-scale nonlinear minimization subject to bounds.”
Mathematical Programming, vol. 67, no. 2, 1996, pp.189-244.
[18] N.V. Hritonenko and Y.P. Yatsenko, Mathematical Modelling in
Economics, Ecology and the Environment, Springer, 1999.
[19] C. A. Martin and S. F. Witt, Accuracy of econometric forecasts of
tourism. Annals of Tourism Research, vol. 16, no. 3, 1989, pp.407-428.