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China's economic development: does exchange rate and FDI nexus matter?

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  • Fayyaz Ahmad
  • Muhammad Umar Draz
  • Su‐Chang Yang

Abstract

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.

Suggested Citation

  • Fayyaz Ahmad & Muhammad Umar Draz & Su‐Chang Yang, 2019. "China's economic development: does exchange rate and FDI nexus matter?," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 33(2), pages 81-93, November.
    • Handle: RePEc:bla:apacel:v:33:y:2019:i:2:p:81-93
    DOI: 10.1111/apel.12268
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    Cited by:

    1. Hamid Jafarzadeh & Yangdong Feng, 2023. "Economic and Spatial Restructuring in the Aras Economic Zone: The Impact of Cross-Border Cooperation," Sustainability, MDPI, vol. 15(13), pages 1-21, June.
    2. Magdalene Williams & Ahmad Abu Alrub & Mehmet Aga, 2022. "Ecological Footprint, Economic Uncertainty and Foreign Direct Investment in South Africa: Evidence From Asymmetric Cointegration and Dynamic Multipliers in a Nonlinear ARDL Approach," SAGE Open, , vol. 12(2), pages 21582440221, April.
    3. Vissa, Siva Kameswari & Thenmozhi, M., 2022. "What determines mergers and acquisitions in BRICS countries: Liquidity, exchange rate or innovation?," Research in International Business and Finance, Elsevier, vol. 61(C).
    4. Abbas Ali Chandio & Yuansheng Jiang & Jam Ghulam Murtaza Sahito & Fayyaz Ahmad, 2019. "Empirical Insights into the Long-Run Linkage between Households Energy Consumption and Economic Growth: Macro-Level Empirical Evidence from Pakistan," Sustainability, MDPI, vol. 11(22), pages 1-17, November.

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