The Impact Of Employment Production On Foreign Direct Investment

In order to use Chinese market data test the theory of race to the bottom in labor standards,which is that a reduction in labor market standards will increase FDI.Take China's Labor Contract Law as the exogenous variable to form DID model,use samples of China's listed companies' data between year 2003-2012.The study found that China's Labor Contract Law has promoted foreign direct investment conversely.the proportion of foreign equity in labor-intensive enterprises has increased significantly.Further explore the influencing mechanism between foreign direct investment and the Labor Contract Law.The labor market competition theory model and the unemployment equilibrium theory model helped to build a mediation effect model with the Labor Contract Law,employment flow,productivity,factor substitution,and foreign direct investment.The results proved that employment flow,productivity and the degree of factor substitution are the intermediary variables between Labor Contract Law and promote foreign direct investment.The Labor Contract Law reduces effective dismissals and reduces employment flow,which forces companies to choose other factors to replace labor factors to optimize production and attract foreign direct investment.To find out which other factors did firms choose to substitute,we find that China's Labor Contract Law has stimulated firms' innovation activity,which helped companies attract more foreign direct investment.