An Analysis Of The Effect Of FDI On Domestic Employment

First, this paper establishes an equilibrium model about capital market and labor market in order to analyze the effect of FDI on employment. By comparing the equilibrium result in closed condition with that in semi-open condition, it can find that the effect of FDI on employment is indefinite, and it is positively related with the capital mobility, that is, the increase of capital mobility will increase the employment effect of foreign capital. Meanwhile, FDI also increases the volatility of domestic labor market which will increase the risk of employment.Second, in order to clearly show the effect of FDI on China's employment, the paper uses the data of China between 1985 and 2005 to do an empirical study, which concludes that the employment effect of FDI on China is positive, and is really positive related to domestic capital mobility.Third, based on the equilibrium result and empirical result, a systemic evaluation is done to the employment effect of FDI. It is shown that the direct effect of FDI is decreasing, while the indirect effect is increasing, these two effect together make the total effect decrease. But as the upgrading of China's industry structure and the advancing of labor skill, the employment effect of FDI will increase in the long run.At last, some advice is put forward. In one side, we should gradually increase domestic capital mobility to promote employment; in other side, as the inflow of FDI also increases the risk of employment, we must keep a cautious attitude to open capital market, take some measures to stabilize the domestic employment, and reduce the negative effect of FDI.