An Empirical Study of the Effects of RMB Exchange Rate on China’s Inflows of FDI

This paper studies both the level and volatility effects of RMB real effective exchange rate on the inflow of FDI with the process of Chinese exchange rate regime adjustment. In particular, it also examines different effects of exchange rate on resource-seeking FDI and market-seeking FDI. It concludes that (1) the expected appreciation and temporary volatility of exchange rate of RMB can stimulate the inflow of FDI in a short term, but the effect is ambiguous in the long run;(2) appreciation of exchange rate will reduce the inflow of resource-seeking FDI while increase that of market-seeking FDI; (3) increasing exchange rate volatility in China will reduce the inflow of FDI in the future; (4) appreciation of RMB real effective exchange rate intends to increase capital intensity per contract of resource-seeking FDI but to decrease that of market-seeking FDI