Impact of Outward Foreign Investment on Home Country Employment

Abstract

Outward foreign direct investment has been growing fast in China over the past decade. Outward foreign direct investment influences home country employment through substitute effect and supplemental effect. This paper analyzed the mechanism of how outward foreign direct investment changes home country employment. The empirical studies examined the relation between China’s outward foreign direct investment, with employment quality and quantity. The result indicates a positive relation exists between outward direct investment and employment, both in employment rate and average wages. As for comparison, this study also examined home country employment effect in Euro area. The empirical analysis suggests that there is no significant impact of outward foreign direct investment in home country employment in Euro area. As an emerging economy undergoing structural reform, employment quantity and quality in China benefit from outward foreign direct investments. Keywordsoutward foreign direct investments; employment; substitute effect; supplementary effect