FDI and Employment by Industry: A Co-Integration Study

The relationship between high levels of FDI and of employment has been of enduring interest in the development literature, particularly in the context of economy as China which has enjoyed exceptional inflows of foreign capital as well as huge amount of working population. Aiming at exploring the specific relations between FDI and employment of three strata industries in china, EG cointegration method and Granger causality test is applied to identify the long-run relations and short-run linkages between FDI and employment in each of the industry via distributed lag model; moreover, first-order and second-order ECMs are created to assess the short-term deviation. Findings indicate that, in secondary and tertiary industry, growth of FDI in the long run would promote employment, and it is especially true for tertiary industry, where bidirectional linkage between FDI and employment exists; in the short term FDI has limited and even negative impetus on employment, with the latter indirectly increasing the former.