Based on the panel data of 28 provinces in the year of 1987-2001,this paper examines the effects of the local govment investment on economic growth and employment.The empirical result shows that the local govment investment plays a significant positive role in economic growth and emplovment.However,while the proportion of local govment investment to GDP had a remarkable rise after 1998.the elasticity of local govment investment on economic growth declined,which shows that there is a hig room for raising the efficiency of local govment mvestment.Moreover,the empirical examination shows that although local govment investment had positive effect on employment,the elasticity had a decrease after 1994 when the tax-sharing system reform was put into practice.This shows that the positive role of local govment investment on emplovment is also limited.This paper argues that the role of local govments as investors must be weakened,and local govments of different levels should lessen direct economic intervention and concentrate on public regulation.