A Study on the Determinants of Employment after Reform & Opening Policy in the Socialistic Economy
: in Case of China and Vietnam
by Song Heui-Joon
Department of International Trade
Korea Maritime University
This paper starts from three questions:
Why do China and Vietnam(C&V) implement the reform & open policy in a gradual way unlike USSR and Eastern European Countries(U&E)? Based on two different initial conditions-one is that there is the government the strong military group has taken over in C & V, the other is that C&V is poorer and lower in education level than U&E-with popular economic tools(production possibility frontier, social indifference curve) it can be shown that C&V can pay the lower opportunity cost to maintain the political system of the Communist party and implement the reform & open policy only in the economic aspects.
What is the economic performance of the reform & open policy in C&V? Since the reform & open policy of two countries, they have experienced more rapid economic growth, more increase of employment, more trade expansion, inward-FDI and migration from urban area to rural area than any other country in the world. It is found that these facts are closely related with each other.
Which factors have an effect on the increase of employment? Based on two theories-Vent for Surplus and Lewis(1954) Model, it can be recognized how trade and FDI generate the economic growth and how they increase labor employment. To identify these relations between factors, the estimation equations for empirical test are derived from the Cobb-Douglas production function and the conditions of profit maximization. According to the empirical results, economic growth and the increase of domestic products have more effect on the increase of employment of both countries than export and FDI. However export effect in Vietnam is stronger than that in China, while FDI effect in China stronger than that in Vietnam. The effect of technological absorption relating to export and FDI in China is better than in Vietnam. Based on these empirical results, Vietnam combines the unskilled labors with FDI and produces the simple processed product and exports them, which generates the increase of employment. The export doesn't contribute to the creation of employment in China. In stead, the labor productivity improvement through technology absorption derived from FDI is generating the employment in China. So, it is concluded that Chinese industry is moving toward the structure which needs more skilled labor than Vietnam.