The effect of RMB real exchange rate on FDI: An empirical research in China

The effect of exchange rate on FDI has been examined extensively for a variety of industrialized countries. Few attempts have been done about developing countries. This paper takes China as the research object and attempts to investigate the effect of Renminbi (RMB) real exchange rate on FDI. After reviewing the previous works done about the effect of exchange rate on FDI, this paper analyzes the correlation between RMB real exchange rate and FDI. Then an empirical study has been implemented to examine the effect of RMB real exchange rate on FDI with correlated data over the period 1985-2004. The empirical evidence shows that the real exchange rate depreciation can stimulate FDI inflows into China and the effect of the real exchange rate on FDI has certain lag. In the end, this paper offers some concluding remarks.