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Why is China so attractive for FDI? The role of exchange rates

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  • XING, Yuqing

Abstract

This paper argues that China's exchange policy plays a critical role in its FDI boom. Yuan's devaluation and the pegging yuan to the dollar policy not only offset the pressure of rising real wage due to sustained economic growth in the last two decades, but also improved China's competitiveness in attracting global FDI. Examining the hypothesis in the context of Japanese FDI in China's nine manufacturing sectors from 1981 to 2001, the paper finds a strong correlation between Japanese direct investment in China and the real bilateral exchange rate between yen and yuan. Empirical evidences strongly suggest that China's exchange rate policy is one of critical factors driving FDI into China.

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Bibliographic Info

Article provided by Elsevier in its journal China Economic Review.

Volume (Year): 17 (2006)
Issue (Month): 2 ()
Pages: 198-209

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Handle: RePEc:eee:chieco:v:17:y:2006:i:2:p:198-209

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Web page: http://www.elsevier.com/locate/chieco

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Cited by:
  1. Aray, Henry & Gardeazabal, Javier, 2005. "Going Multinational under Exchange Rate Uncertainty," DFAEII Working Papers 2005-05, University of the Basque Country - Department of Foundations of Economic Analysis II.
  2. Matthias Busse & Carsten Hefeker & Signe Nelgen, 2010. "Foreign direct investment and exchange rate regimes," Volkswirtschaftliche Diskussionsbeiträge 141-10, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  3. Liao, Wei & Shi, Kang & Zhang, Zhiwei, 2012. "Vertical trade and China's export dynamics," China Economic Review, Elsevier, vol. 23(4), pages 763-775.
  4. Zhang, Yanbing & Hua, Xiuping & Zhao, Liang, 2011. "Monetary policy and housing prices; a case study of Chinese experience in 1999-2010," BOFIT Discussion Papers 17/2011, Bank of Finland, Institute for Economies in Transition.
  5. Nagubadi, Rao V. & Zhang, Daowei, 2011. "Bilateral foreign direct investment in forest industry between the U.S. and Canada," Forest Policy and Economics, Elsevier, vol. 13(5), pages 338-344, June.
  6. Jingliang Xiao & Glyn Wittwer, 2009. "Will an Appreciation of the Renminbi Rebalance the Global Economy? A Dynamic Financial CGE Analysis," Centre of Policy Studies/IMPACT Centre Working Papers g-192, Victoria University, Centre of Policy Studies/IMPACT Centre.

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