An Empirical Study On Foreign Direct Investment And Employment In Services

Since the 1990s, with further opening the domestic service market, China's service industry has developed rapidly, and has absorbed more laborers than the secondary industry, service industry gradually become the main channel of absorbing new jobs and transferring surplus labor. At the same time, Foreign Direct Investment (FDI) has grown rapidly in China, China has become the largest host country of FDI among the developing countries and regions. In view of the severe employment situation in China, research on whether FDI impacts employment in China's service industry and how it affects has important theoretical and practical significance.Base on above analysis, according to the development trend, industry distribution and regional distribution, the paper describes FDI and employment in the services sector and its relationship between the two at first. And then, the paper studies the channels of FDI effects service employment in theory. Theoretical results reveal that FDI not only has a direct impact on the employment in service industry, but also affects the employment in service industry through economic growth, domestic investment and technology progress. Then the panel data of 30 provinces in addition to Tibet from 1997 to 2005 and the panel data of 14 service industries from 2004 to 2006 were used in this article to test the relationship between the FDI and service emplyment. The empirical research reveals that FDI play a positive role on the employment in service industry for the whole nation, but the effect is not significant. FDI significantly promotes employment in service industry in eastern and central regions, and the effect in the eastern region is greater than the central region. FDI has a significant negative effect on the employment in service industry in the western region. Besides, FDI flows to the service sector can contribute to the employment in service industry significantly. Finally, combined with the status quo analysis, theoretical analysis and empirical analysis, the paper proposes the policy proposals of making use of FDI to promote the employment in China's service industry.