Push "Stabilizing Employment" By Means Of "Stabilizing Foreign Investment"

Examining the employment effects of foreign direct investment(FDI)on indigenous firms will help to have a comprehensive cognition to the impact on the host economic growth of FDI,and provide an important theoretical basis to formulate a reasonable FDI policy for the host.We establish a DID(Difference-in-Differences)model and construct a reasonable instrumental variable to analyze the impact of FDI on the employment of Chinese indigenous firms by taking advantage of the plausibly exogenous relaxation of FDI regulations on China’s World Trade Organization accession.Specifically,we build a quantitative regression based on panel data to identify the effects of FDI on local employment on the basis of better handling of endogeneity problems.Our regression is based on the China Industrial Enterprise Database.The main method we applied is using the adjustment of the Foreign Direct Investment Industry Guidance Catalogue on China’s World Trade Organization accession which seams a plausibly exogenous relaxation of FDI regulations.The results show that the relaxation of foreign investment access policy has a direct positive impact on the employment of local enterprises.At the same time,the foreign investment has led to a significant positive effect on the employment of local enterprises.The higher the FDI share of the industry,the greater the demand for labor in local enterprises.The regression results were tested by Anderson-Rubin Wald test and Stock-Wright LM S statistic.In terms of scale,after controlling a series of control variables and time fixed effects and individual fixed effects,the FDI coefficient is 1.703,which indicates that for every 1% increase in foreign direct investment,the demand for labor will increase by 1.703 percentage points when other factors are controlled.In order to explore the trend of FDI’s impact on employment over time,this paper also carried out dynamic effect analysis and the same trend hypothesis test.The results of the study show that the increase in FDI has significantly promoted the employment of indigenous firms.In addition,this paper also carried out a series of robustness tests.Considering the possible nonlinear relationship between the impact of FDI on the employment of local enterprises,we included the quadratic term of FDI.At the same time,considering various possible influencing factors,we have added more control variables to reduce the possible errors of missing variables.Such as the restructuring of state-owned enterprises,the transformation of corporate equity,geographical factors and enrollment expansion of universities and so on.We found that the impact of FDI on the employment of local enterprises is still significantly positive,and the regression results are consistent with the conclusions obtained from the basic regression.Finally,on the basis of the above conclusions,this paper decomposes the nature of the enterprise and attempts to explore the impact mechanism of FDI on employment.We found that the impact of FDI on the employment of local enterprises is mainly achieved by affecting the exit rate of local enterprises and the employment of labor-intensive enterprises.In other words,the impact of FDI on the employment of local enterprises is mainly achieved by affecting the expansion margin of employment,but has no significant impact on the employment of enterprises that continue to operate,and the impact on employment of capital-intensive enterprises is not significant.The research in this paper deepens our understanding of the current relationship between “stabilizing foreign investment” and “stabilizing employment”,and explains the function of relaxing the restriction of foreign investment to further expand the opened-up areas.