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China's economic development: does exchange rate and FDI nexus matter?
Author(s) -
Ahmad Fayyaz,
Draz Muhammad Umar,
Yang SuChang
Publication year - 2019
Publication title -
asian‐pacific economic literature
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.232
H-Index - 21
eISSN - 1467-8411
pISSN - 0818-9935
DOI - 10.1111/apel.12268
Subject(s) - renminbi , foreign direct investment , openness to experience , exchange rate , nexus (standard) , economics , granger causality , china , monetary economics , international economics , capital (architecture) , macroeconomics , econometrics , psychology , social psychology , computer science , law , political science , embedded system , history , archaeology
This study aims to investigate the relationship between China's exchange rate, foreign direct investment (FDI) inflows, and economic development. We applied the bound testing approach on aggregate level data from 1981 to 2013. The results showed that the Chinese economy benefitted from a lower exchange rate over this period, and that there was a direct link between FDI inflows and economic development on an aggregate level both in the long and short run. The results of the Granger causality test identified a long‐ and short‐run association among these variables. The GMM estimations with dummies for financial crises and RMB exchange rate policy fluctuations also confirmed the growth enhancing impact of the exchange rate and FDI inflows. To promote sustainable economic development in the future, China should focus on improving the levels of domestic investment and human capital, as well as supervising the level of openness and capital controls.