The Impact of Renminbi Exchange Rate and Exchange Rate Volatility on China's Outward Foreign Direct Investment

Abstract

China's Outward Foreign Direct Investment (OFDI) has been steadily increasing in recent years, and the Renminbi exchange rate and its volatility have played a crucial role in shaping this trend. This study aims to explore the impact of the Renminbi exchange rate and its fluctuations on China's OFDI. By analyzing OFDI data to 21 countries and regions globally from 2004 to 2019, we conclude that an appreciation of the Renminbi can facilitate China's OFDI, while depreciation may potentially hinder its growth. However, our research also reveals that the impact of Renminbi exchange rate volatility on OFDI is limited. Additionally, factors such as the host country's GDP size and level of openness also influence China's OFDI to a certain extent. Finally, based on our empirical findings, we provide policy recommendations to help China better manage its outward foreign direct investment.