Influence of Systemic Banking Crises and Currency Crises on the FDI-Growth Nexus: Evidence from China

Abstract

This study investigates the influence of systemic banking crises, currency crises and global financial crisis on the relationship of foreign direct investment (FDI) and economic growth in China by using the annual time series data from the period of 1982 to 2014. The Johansen and Juselius (J–J) cointegration, autoregressive distributed lag (ARDL) bound testing cointegration approach, and Gregory and Hansen’s (1996) cointegration approach with structural break confirm the valid long-run relationship between considered variables. Results indicate the positive and significant effect of FDI on economic growth. Whereas the negative influence of systemic banking crises and currency crises over economic growth is observed. It is also concluded that the impact of FDI on economic growth becomes insignificant in the presence of systemic banking crises and currency crises. The systemic banking crises effects the influence of export on economic growth more as compared to currency crises. Surprisingly, the export in the period of global financial crises has a positive and significant influence over economic growth in China, which conclude that the global financial crises did not drastically affect the export-growth nexus.