Exports,Foreign Direct Investment and Employment: The Case of China

This paper analyses the growth of production and employment in China during the period 1978 to the early 1990s. It argues that the Chinese experience with export‐led growth provides an excellent case study of the phenomenon of a vent for surplus resources 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 for foreign investment flows. The ‘vent‐for‐surplus’ effect of exports on employment and growth is examined in a dynamic labour demand framework for a panel of township and village enterprises (TVEs) in China.