China's economic performance is impressive since it reformed and opened up its economy in 1978. This most populous country in the world achieved an average annual real growth rate of around 9.5% over the period 1978-2005.
A lot of economist has made statements that FDI inflow and inter- national trade has played a significant role in the Chinese growth process. Given two decades of remarkable export growth and a mixed economic growth performance, it is pertinent to ask: what is the impact of FDI inflow and export on increasing employment and economic growth?
In order to deal with this economic phenomenon, two theories connected to that are introduced. One is ' vent for surplus' which was originally initiated by A. Smith and refined by H. Myint. It gives us a good economic accounts on the relationship between FDI inflow, export and economic growth. The other one is 'Lewis model' which makes a proper explanation about the relationship between FDI inflow, labor migration from agricultural sector to manufacturing sector and economic growth.
To make sure that such things as two theories suggested has taken place in China, I attempted to make an empirical test. with the result of the test, I found as follows.
First, FDI mostly invested in manufacturing sector was combined with low wage labor.
Second, most of goods produced in manufacturing industry was exported to foreign countries rather than consumed in the domestic market.
Third, there is a transmission mechanism that FDI inflow increased the employment which led to increasing manufacturing goods and contributed to increasing export.