Spillover Effects of Foreign Direct Investment Inflows and Exchange Rates on the Banking Industry in China

Jung Wan Lee, Zhen Wang / Journal of Asian Finance, Economics and Business, Vol 5, No 2, (2018) 15-24

10 Pages Posted: 8 Oct 2018

See all articles by Jung Wan Lee

Jung Wan Lee

Boston University - Department of Administrative Sciences

Zhen Wang

Boston University

Date Written: May 5, 2018

Abstract

The study examines the magnitude of economic spillover and the impact of foreign direct investment (FDI) inflows on the efficiency of the bank industry in China. This study employs unit root tests, cointegration tests and cointegrating regression analysis, including fully modified ordinary least squares (FMOLS), canonical cointegrating regression (CCR) and dynamic OLS (DOLS) to test the proposed hypotheses. The sample is restricted to the period of time in which monthly data is available and comparable among variables for the period from January 2002 to October 2013 (142 observations). All of the time series data was collected and retrieved from the People’s Bank of China, China Monthly Statistics from the National Bureau of Statistics of China, and International Financial Statistics database from International Monetary Fund. The results of the Johansen cointegration test suggest that there is a long-run equilibrium relationship between FDI inflows, foreign exchange rate and banks performance in China. The results of cointegrating regression analysis using FMOLS, CCR and DOLS suggest that M2 supply and FDI inflows are significant at the 0.01 level. The results confirm that FDI inflows in the banking sector are positively related to the increase of banks productivity and performance and short-term loans in China. However, the results suggest that Chinese Yuan currency exchange rate to U.S. dollar is not significant in the banking and financial industry of China.

Keywords: Foreign Direct Investment, Exchange Rate, Economic Spillover, Bank Productivity, Bank Performance, Banking Industry, China

JEL Classification: E42, E43, E51, E52, G21

Suggested Citation

Lee, Jung Wan and Wang, Zhen, Spillover Effects of Foreign Direct Investment Inflows and Exchange Rates on the Banking Industry in China (May 5, 2018). Jung Wan Lee, Zhen Wang / Journal of Asian Finance, Economics and Business, Vol 5, No 2, (2018) 15-24. Available at SSRN: https://ssrn.com/abstract=3250127

Jung Wan Lee (Contact Author)

Boston University - Department of Administrative Sciences ( email )

808 Commonwealth Avenue
Boston, MA 02215
United States
617 358 5627 (Phone)
617 353 6840 (Fax)

HOME PAGE: http://www.bu.edu/met

Zhen Wang

Boston University ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

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