Exchange rate appreciation and outward FDI in China

Abstract

This study analysed the impact of appreciation of the renminbi (RMB) on China's outward foreign direct investment (OFDI) on a theoretical and empirical basis. Based on theoretical analysis, we found that the appreciation of RMB can promote OFDI, as it can lower the threshold for foreign direct investment. Then, by constructing export-weighted effective exchange rates, we found that for every 1% appreciation of the RMB, the probability of enterprises engaging in OFDI increased by 0.0069 over 2001–2012.

KEYWORDS:

• Enterprise heterogeneity
• outward FDI
• RMB appreciation

JEL Classifications:

• F310
• F23

Acknowledgements

We thank the editor and Professor Lex Zhao and the anonymous referee for reviewer for their insightful comments very useful suggestions, which we think have substantially improved the paper. All the remaining errors are our own. Authors are in alphabetical order and contribute equally to the paper and all could be treated as joint first authors.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 We also analysed the role of exchange rate uncertainty on Chinese OFDI in Appendix 2. From Table A3, we found that a company is more likely to implement OFDI when the exchange rate is less volatile.

Additional information

Funding

Faqin Lin thanks for the financial support of the National Natural Science Foundation of China [grant numbers 72073128, 71773148 and 72061147002], Key projects of Social Science Fund [grant number 19AZD012] and Jiaxing University, Institute of China Common Prosperity research fund [grant number ICCPR2021005].