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Impact of the Renminbi’s Real Exchange Rate on Foreign Direct Investment: The case of China

  • Journal of Asia-Pacific Studies
  • Abbr : JAPS
  • 2017, 24(2), pp.245-264
  • DOI : 10.18107/japs.2017.24.2.008
  • Publisher : Institute of Global Affairs
  • Research Area : Social Science > Social Science in general
  • Received : May 8, 2017
  • Accepted : June 21, 2017
  • Published : June 30, 2017

Liu, Guo Dan 1 Jo,Gab Je 1

1계명대학교

Accredited

ABSTRACT

This study investigates the impact of exchange rate on FDI(foreign direct investment) through ‘the impulse response function’, based on the VAR model. Th VAR model include monthly real growth rate of foreign direct investment, RMB(Renminbi)’s real effective exchange rate, industrial production index, labor cost and trade exports from January 2001 to December 2015. We found that the RMB appreciation has a positive impact on FDI after a certain period of time. Also, It is found that the labor cost has a negative impact on FDI. Further, the effect of the RMB appreciation on the FDI depends on industry. The financial and real estate industries are believed to have attracted FDI due to the appreciation of the RMB. On the other hand, for the manufacturing industry, it is found that the appreciation of the RMB has restrained FDI flows. China’s low labor cost advantage over the last decade no longer exists in the wake of rising wages every year. This further suppressed FDI inflows in manufacturing.

Citation status

* References for papers published after 2022 are currently being built.

This paper was written with support from the National Research Foundation of Korea.