Foreign direct investment, off-farm employment and rural labour income: evidence from China

Abstract

ABSTRACT The study is to investigate how foreign direct investment (FDI) affects China’s off-farm employment and per capita income of rural labourers and compare the effects in different regions. Based on panel data from 1997 to 2018 in 27 provinces and analysing the results of the simultaneous equations and dynamic generalized moment models with economic distances as extra instrumental variables, the study finds that FDI on average has played a significantly positive role in Chinese off-farm employment and per capita income of rural labourers. However, FDI has a much bigger impact on off-farm employment and per capita income of rural labourers in the coastal region than that in the inland region. In addition, we observe a positive off-farm employment and income effect of FDI with rural labour’s education level playing a significantly positive moderating role. The impact mechanism test also shows that FDI’s impact on off-farm employment and income is realized by stimulating the development of non-agricultural industries and directly creating jobs. These adjustments make a significant contribution to poverty reduction in rural China. China should further adjust the structure of FDI and optimize the regional distribution of foreign investment for promoting the overall transformation in rural China.