Theory And Empirical Analysis On The Relationship Between Investment And Employment

China is a country with large population and rich in resources of labor. At present,employment problem has become a serious problem of China's macro economy. According to the theory of unemployment of Keynes: "He considered that unemployment due to inadequate effective demand, while effective demand shortage caused by three basic mind rules,that is, diminishing marginal propensity to consumuption,law of capital diminishing marginal utility and capital flows. Diminishing marginal propensity to consume resulted in insufficient consumption,while law of capital diminishing marginal utility and flow preferences caused insufficient investment. At the same time, the consumption tendency is relatively stable if there is no big change on income,the consumption is stable also. It is the only way to make up insufficient effective demand by increasing investment ". Therefore, this paper studies the relationship of investment and employment. There are many ways to classify investment, in this paper difference investment by domestic and foreign.So total investment is divided into two parts,that is,domestic investment and foreign investment.From the perspective of theory and empirical to analyze the relationship of investment and employment.First, from the perspective of theory to analyze the effect of investment to employment, and then adopted panel unit root test, panel cointegration model and error correction model, the method of empirical research to analyse the penal data of various provinces. Samples interval from 1985 to 2008. First, analyse the relationship of investment and employment from the perspectiv of total investment .Then to analyse the relationship of investment and employment from the perspective of foreign investment and domestic investment.Meanwhile, employment was divided into three parts,that is, the first, second and third industry employment.According to the empirical results,there is a negative relationship between the total investment and the first industry employment,however,investment played a very important role in increasing employment of the second and the third industry.The two parts of investment,FDI and domestic investment, have a negative relationship about the first industry employment, and the second and third industry employment is positively relationship. That means investment can increase the second and third industry employment.But the coefficient of equations are different ,domestic investment more than FDI .Totally, there is a slow trend on the role of promoting employment .In order to increase employment, the most important is to invert the structure of investment.This paper provide a economics explain on the basis of empirical and theory results.Distingished the promote role of foreign investment and domestic investment on the employment .Under the condition of total investment constant, how to reasonable allocation and guide the investment can better promotes employment policy suggestions, etc.