The Relationship between FDI and Employment in China's Manufacturing Industry

Abstract

China has achieved rapid economic growth after reforming and opening up, becoming the second largest economy after the United States. At the same time, China began to attract foreign direct investment, and the scale of foreign direct investment has been becoming larger and larger. It’s obvious that FDI has played a crucial role in promoting China's economic growth. But China is a country with a big population, the employment problem is the most direct and realistic problem. Although overall employment is increasing in China, the speed of employment growth in the manufacturing industry is very low. After all, the manufacturing industry is the main industry in China. So, there has been an expectation that foreign investors would bring not only new technology and capital, which would accelerate structural changes, but would also maintain employment. The topic of this paper is to analyze the relationship between FDI and employment in China’s manufacturing industry. In particular, this study explores the role differential effect of FDI in low-tech and high-tech manufacturing industries. This analysis was conducted using OLS regression models estimated for panel data between 1999 to 2015. And this paper also explores the real relationship between FDI and employment in the manufacturing industry of China through four company cases. The result shows that there is a significant positive relationship between FDI and employment for the entire manufacturing industry of China, and FDI has a greater effect on high-tech manufacturing industries than low-tech manufacturing industries. But in the company cases, the effect of FDI on employment in high-tech and low-tech manufacturing industry are not much different.