China grow.pdfVIP

EXPORTS, FDI, GROWTH OF SMALL RURAL ENTERPRISES AND EMPLOYMENT IN CHINA ESRC Centre for Business Research, University of Cambridge Working Paper No. 286 By Xiaolan Fu University of Cambridge Centre for Business Research Judge Institute of Management Building Trumpington Street Cambridge, CB2 1AG Email: xf205@cam.ac.uk Telephone: +44 0 1223 765325 and V.N.Balasubramanyam International Business Research Group Department of Economics Lancaster University Lancaster, LA1 4YX June 2004 This Working Paper forms part of the CBR Research Programme on Enterprise and Small and Medium-Sized Enterprises. Abstract This paper analyses the growth of employment in China during the post reform period. It argues that the Chinese experience with export-led growth provides an excellent example of the phenomenon of a vent for surplus productive capacity provided by exports, identified by Adam Smith in the Wealth of Nations and elaborated by Hla Myint. The paper extends the Smith-Myint model of ‘vent-for-surplus’ productive capacity to ‘vent-for-surplus’ resources by allowing foreign investment inflows. The ‘vent-for-surplus’ effect of exports on employment growth is examined in a dynamic labour demand framework for a panel of township and village enterprises TVEs in China. JEL Codes: F16, F21 Keywords: exports, foreign direct investment, small and medium-enterprises, employment Acknowledgements The authors are grateful to Professor Alan Hughes, Dr Andy Cosh, Professor Wing Thye Woo, Dr Nick Snowden, Professor Xiamin Liu, Dr Mohammed Salisu and the anonymous reviewer for their helpful comments. We would also like to thank the Centre for Business Research, Cambridge University, Lancaster University Management School and the Peel Trust Fund for their financial support. Further informatio