Employment And Income Effects Of FDI In Chinese Cities

Since economic reform and opening-up policies were launched, a large number of foreign direct investment has flown into China. China has experienced high economic growth, however, employment pressure is rising as a result of relatively low growth of employment. Additionally, low returns of labor make the situation of income distribution worrying. Previous researches show that FDI could create employment opportunities and raise wage in host country. To accelerate the growth of employment and income, it is necessary to consider the employment effect and income effect of FDI in China.This thesis discusses recent research progress, has a review of theory about FDI and employment as well as income, and describes the situation of FDI, employment and income of China. Then Built on the theory of capital mobility and relative demand for skilled workers, this thesis develops and empirically estimates an econometric model of employment and income effects of FDI in 286 Chinese prefecture or higher level cities for 2004-2008. The empirical results show that the size of FDI stock has significantly effects on the employment of urban skilled workers relative to the employment in all other sectors and on the wage of skilled workers relative to the average wage of all other sectors. However, the effects of relative employment and wage vary between the most developed and the least developed regions: in the 10 most developed provinces, a larger size of FDI stock primarily pushes the wage of skilled workers to increase and secondarily contributes to employment growth; in the 10 least developed provinces or equivalents, however, FDI mainly contributes to employment growth of skilled workers and exerts very little effect on wage increase of skilled workers. The research also reveals that FDI significantly raises employment share and relative wage of manufacturing across these cities. Finally, this thesis gives some important suggestions on the basis of the disquisition.