A research on impacts of real exchange rate upon foreign direct investment based on VAR model

Abstract

Based on the 1985-2009 time-series data and the traditional theory of international direct investment, by using co-integration analysis, vector error correction model and granger causality test, this paper study the real exchange rate impact on foreign direct investment with VAR model. The conclusions are as follows: factors affecting foreign direct investment include China's real GDP and real wages, and the influence of the former than the latter. However, the influence of RMB exchange rate on foreign direct investment is weak. Based on the research results, at last the author gives the proposition to attract foreign direct investment. © 2012 Springer-Verlag GmbH Berlin Heidelberg.