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Time series analysis of the RMB/HKD exchange rate and foreign direct investment from Hong Kong, China

Wenrong Pan, Yu Song

In this paper, a co-integration model was estimated to analyze the dynamic relationship of RMB/HKD exchange rate and FDI (Foreign Direct Investment) from Hong Kong, China, from 1997 to 2013. Our results show 1) in the long run, there is an equilibrium relationship between RMB/HKD exchange rate and FDI from Hong Kong, China, and 2) the appreciation of RMB can promote FDI inflow. Additionally, a unit root analysis of the model was conducted and Granger causality tested based on the empirical data.