FDI, Employment, and Economic Growth of Beijing City: Mechanism and Empirical Test

This study was set out to investigate the linkages between employment, FDI and economic growth of Beijing city, and the mechanism of FDI’s impact on employment and the city’s economic growth. Channels of FDI’s spillover mechanism on employment and economic growth are identified. And based on sixteen district-level data of Beijing city from 2006 to 2017, we use panel data model to test the linkages between FDI, employment and city’s economic growth. Findings show that for the six inner-city districts with well-developed economy structure and city infrastructure, both FDI and Employment have a positive influence on the economic growth; while for the ten outer-city districts, economic growth seems to be fueled by employment and fixed capital investment.


Introduction
Foreign direct investment (FDI) refers to the foreign capital's direct investment to China's economy, which is according to the existing investment policies of the host country. It not only promotes the development of the host country's economy and improves the living standards of the people, but also has an important impact on the employment of the host country.
As an important measure of promoting the development of the domestic economy, FDI plays an increasingly important role in the world economy. Since the reform and opening, China has continuously expanded the scale and improved the level of foreign capital utilization. In 2003, China introduced more FDI than that of the United States, becoming the world's largest host country for FDI. *Corresponding author. However, because of the differences in regional openness, investment policies and economic development levels, the regional distribution of FDI shows unbalanced characteristics. FDI has different impacts on economic development, employment and efficiency. However, due to the great differences in human resource endowment and infrastructure conditions in different regions, the impact of FDI on economic growth and employment presents a multifaceted feature.
As China's first metropolis of service industry opening to the outside world and China's foreign exchange center, Beijing attracted 24,329.9 million US dollars of foreign investment in 2017, accounting for 18.57%, nearly one fifth of China's foreign investment 1 . At the same time, Beijing is a relatively vast city and large market with 16,412 square kilometers, a population of 21.707 million 2 . In terms of administrative division, Beijing includes 16 districts-six urban districts and ten suburban districts. The economic development mode, industrial structure, industrial development, natural endowment, infrastructure and other conditions of the districts and counties are quite different, and the degree of opening to the outside world is relatively high. As a super-large open city in developing counties, FDI has become one of the important driving forces of Beijing's economic development. Beijing has developed relatively smoothly in terms of employment and foreign direct investment. Therefore, it has certain realistic significance to explore Beijing's FDI, employment and economic growth for other large cities in developing counties to utilize FDI and develop their own economy.
In this study, we try to investigate the impact mechanism of FDI on the economic growth and employment of the host country under the framework of an open economy context and using data of sixteen districts in Beijing as samples for empirical tests. The rest of the paper is organized as follows: II. Literature review; III. Theoretical Framework: Mechanism, in which part we established a two-country and two-sector economy model in world economy and made a theoretical analysis on the channels of FDI's spillover mechanism; IV. Empirical Test: in this part we use dataset of sixteen districts in Beijing to empirically test the topic; V. Conclusion.

Literature Review
Research on the impact of FDI on host economies generally uses different samples and empirical test methods. Because of different economic development and resource endowments of host countries, the conclusions are also quite different.

Theoretical Framework: Mechanism
In order to study the interactive effects of FDI on economic growth, employ-

1) Households Behavior
Under the budget constraint, households will try to optimize their utilities by choose the most appropriate consumption and employment level defined by the time point on the budget constraint line.
The utility function of households can be defined as: ( ) t C refers to the consumption level of households, and , D t D refers to the firms' residual profits gained by the domestic households.

2) Firms Behavior
Firms use capital and labor factors for their production, and their production function can be defined as: And assume that fixed investment and FDI have the same depreciation rate δ , then the dynamic functions for domestic and foreign capital (FDI) would be ( ) is domestic investment accumulation in fixed assets in period t, the accumulation of FDI in fixed assets in period t; . . , D t F t I I are domestic investment and FDI in period t respectively; δ represents for depreciation rate. Domestic investment and FDI shown in the t period; δ represents the capital depreciation rate.
Assume that each period of domestic investment and FDI meet the following equation: .
Given zero initial capital stock, domestic investment accumulation and FDI accumulation would be equal.
Meanwhile, assume that the remaining profits after firms' paying for wages and investments are allocated based on the share of capital held by the households.
Firms' profits would be: , , t t t P w L refers to the price index, wage level and employment level of period t. t D is the total dividend, including dividends distributed by domestic households, , D t D , and by foreign residents, And the relation between domestic dividends and foreign dividends meets the following equation: 3) Equilibrium Analysis. Assume that t A 1 = , and t P 1 = , then we have the following equations for the economy: Yield of firms, For the domestic households' dividends presented by K, For the wage represented by , α β and δ , ( ) For the yield represented by L For the domestic households' dividends presented by C, For the capital, The relation between wage and employment can be defined as: And B can be presented as From Equation (21)

Econometric Model and Data Description
According to the above theoretical model, foreign direct investment, employment and economic growth have interactive effects, while domestic investment is also a factor of economic growth. The following econometric models are set in this paper: Among them, subscript "i" indicates the 16 districts and counties in Beijing, and "t" indicates the year.

Pooled Regression
As a reference, we first carry out pooled regression, which assumes that all sixteen districts have the same regression equation and that there are no individual specific effects, that is, no constant terms. The pooled regression equation for the four cities is uniformly set as follows: Three forms of pooled regression, as Cluster-robust standard error pooled regression, heteroscedasticity robust standard error pooled regression and common standard error pooled regression were performed respectively.
As the natural endowments and development patterns of the six inner city districts and ten outer city districts are quite different, we divided the 16 districts into two groups-the six inner-city districts and the ten outer-city districts. We carry out full sample regression based on all sixteen districts, and two sub-sample regression based on the six inner-city districts and ten outer-city districts respectively.
From the results in According to the pooled regression results in the outer-city districts as shown in Table 4, FDI and employment is not significant in cluster-robust standard error pooled regression, fixed asset investment is significant. In the robust standard error and standard error pooled regressions, FDI is not significant, while fixed asset investment and employment are significant. have its own characteristics, that is heterogeneity. Therefore, we need to investigate confirm the effectiveness of pooled regression through F-test. From Table 6 we can see that LSDV test of full sample shows that, except district  From results of FE model (Table 7) and RE model (  Note: rho value:fraction of variance due to u_i. 3 Even in fixed effects model, individual-specific effects " i µ " is still a random one, but not a fixed constant. In order to further illustrate the validity and scientificity of the estimation results of the above fixed effect model and random effect model, we carry out Hausman Test to further investigate the effectiveness of the regression results of in Table 7 and Table 8.
Test results in Table 9 show that P value equals 0.0000, which strongly reject the H 0 , that is the difference in coefficients is systematic, and fixed effects regression is effective. Therefore, fixed effect model regression in Table 7 is reliable and scientific, and our discussion will be based on results of fixed effect regression.

Discussion
According to the fixed effect regression results (Table 7), under the full sample regression, the coefficient of FDI is 0.0518 for the 16 districts and suburbs in Beijing, which has a positive effect on economic growth. For every 1% increase in FDI, the total economic growth is 0.0518%. FDI is significant at the statistical level of 10%. This positive correlation shows that the inflow of FDI will drive the overall economic development of Beijing. Employment in 16 districts has a significant positive effect on economic growth at the level of 1%. Fixed asset investment has a positive effect on economic growth and is significant at the statistical level of 5%.
The regression results of six inner-city districts are different from those of 16 districts and outer-city districts in Beijing. FDI plays a more significant role in promoting economic growth. Statistically, it is at a significant level of 1%, with a coefficient of 0.208, which indicates that for every 1% increase in FDI inflow, the total economic growth is 0.208%. The economic growth effect of employment is also significant, but the coefficient is slightly lower, 0.99; it is worth noting that the rate of return on fixed investment is negative, with a coefficient of −0.153.
This result is contrary to common sense. Increasing capital input should normally increase output rather than decrease it. The six inner-city districts of Beijing include districts of Dongcheng, Xicheng, Chaoyang, Fengtai, Shijingshan Table 9. Hausman test for full and sub-sample.

Conclusions
The author analyzed the theoretical mechanism of the interaction among FDI,