The effect of foreign direct investment (FDI) on employment in China

Abstract

This paper studied the relationship between employment and FDI in China. China has been the largest recipient of FDI, and it is in the critical moment of economic structural adjustment. So the research of the relationship between employment and FDI can provide some useful recommendations to policy makers. I compared the effect of FDI on employment in 8 sectors. The scatter plot results showed a negative relationship between FDI and employment in Agriculture, Forestry, Animal husbandry & Fishing and FDI has positive effects on employment in the industries of Finance, Mining and Real estate. For the total FDI and employment, there also exists a positive relationship between them. In terms of a Generalist Method of Moments(GMM) test, I eliminated the effect of standard errors on autocorrelation and heteroskedasticity. I also tested over identifying restrictions to make the results more accurate. Finally, we know that there is a positive relationship between current and past data of employment and FDI.