Outward FDI, industrial structure upgrading and domestic employment: empirical evidence from the Chinese economy and the belt and road initiative

Does outward foreign direct investment (OFDI) create or diminish jobs in the home country? We develop a theoretical model to study the relation between OFDI and domestic employment and to evaluate the roles that industrial structure upgrading and the Belt Road Initiative (BRI) play therein. Using Chinese provincial panel data during the period 2005- 2018, and applying simultaneous equation modelling techniques to control for endogeneity, we find that China's OFDI presents a significant positive impact on domestic employment, and the BRI moderates this impact positively. As a mediating factor, industrial structure upgrading suppresses employment, but the overall employment impact of OFDI remains positive. We construct panel simultaneous equation models to control for the endogeneity problem caused by simultaneity, and find that our main findings are still supported. (c) 2021 Elsevier Inc. All rights reserved.

Automated summary

The study shows that outward foreign direct investment (OFDI) in China has a positive impact on domestic employment, which is further enhanced by the Belt Road Initiative (BRI). While industrial structure upgrading suppresses job growth, overall OFDI still has a positive effect on employment.