Abstract:Does high social insurance cost discourage firm investment and therefore impede real economy growth? This paper empirically tests the impact of social insurance cost on firm investment using Chinese industrial enterprises data, and chooses proportion of the elderly of city as instrumental variable because of endogeneity problem in econometric regression. This paper finds that the rise of a standard deviation in social insurance cost will reduce investment about 3.3%, which can explain 6.4% variance of investment and is stronger in economic significance. This paper also explores the transmission channels of social insurance cost change on firm investment, and finds that the three main channels are labor cost channel, TFP channel and financial constraints channel. Based on above results, we expect policies of cutting down social costs will stimulate firm investment and promote regional economic development.