Trade openness, foreign direct investment and job reallocation of chinese industrial sectors

Abstract

Both trade expansion and inflow of Foreign Direct Investment (FDI) potentially play important roles in shaping the Chinese labor market, but most studies of the effects of trade and FDI on the labor market focus only on the net employment change. In this study, we describe the pattern of job flows both within and across sectors and investigate the links between trade expansion and FDI inflow with gross job flows in Chinese industrial sectors. The study yields three main results. First, gross job flows mainly occur between firms and within industrial sectors and there is relatively small employment change across sectors over the past 10 years. Second, trade openness overall has limited effects on job flows occurring within sectors but has substantial effects on the net change in employment across sectors. Third, in contrast to trade openness, FDI inflows have small effects on changes in employment across sectors after controlling for trade expansion effects but can generate substantial effects on job flows within industrial sectors.