Empirical analysis for the impact of RMB real effective exchange rate on foreign direct investment in China

Wenrong Pan* and Yu Song

Abstract

In this paper, from the perspective of RMB exchange rate reform, the impact is studied of RMB real effective exchange rate on FDI (Foreign Direct Investment) in China from January 1997 to December 2013. In the long run, there is an equilibrium relationship between RMB real effective exchange rate and FDI. The impact of RMB real effective exchange rate on FDI was not affected until the promulgation of the reform policy from July 2005. That is, only after the reform, RMB exchange rate had a significant Granger causality on FDI and the appreciation of RMB can promote FDI inflow.