Can outward direct investment and openness to the outside world reduce regional labor misallocation?

Using provincial panel data(Excludes Taiwan, Hong Kong and Macau) from China spanning 2009 to 2023, this paper systematically examines the relationships among openness to the outside world, outward direct investment, and regional labor misallocation. The research findings indicate a significant negative correlation between openness and the level of labor misallocation, suggesting that expanding openness is conducive to improving the efficiency of regional labor allocation. Meanwhile, outward direct investment also demonstrates a notable negative effect, implying its positive role in optimizing resource allocation and reducing labor misallocation. In addition, the empirical results reveal a significant synergistic effect between openness and outward direct investment, with their combined effect being more pronounced in reducing labor misallocation. Further mechanism analysis shows that outward direct investment plays a mediating role in the impact of openness on labor misallocation. It is noteworthy that this mediating effect exhibits marked heterogeneity across regions with differing degrees of marketization: in regions with low marketization, openness significantly reduces labor misallocation by promoting outward direct investment, while in regions with high marketization, this mediating role is not evident.