Comparative Study Of Impact Of Real Effective Exchange Rate On The Industrial Form And Employment Form Between China And India

As a relative price between non-tradbale goods and tradable goods, the reer is an important factor that effects foreign trade and international capital flow. Its fluctuation have an impact on the resource allocation among different industries,then on the industrial structure adjustment. so, under an opening economy situation, reer become an effecting part to the adjustment of industrial structure and employment structure.There are three effecting ways.Firstly, through price penetration effect, reer effects the price change between non-tradbale goods and tradable goods, and the production of different sectors will change under the guide of price mechanism and lead to the structure adjustments. Secondly, reer fluctuation promotes the development of foreign trade which in turn effects the industrial structure. Thirdly, FDI plays a key. role. FDI enable the developing country to establish new industries which they are not able to achive under many kinds of restrictions. So, this can promote the updating of the orginal industry. To give a micro level view, the enterprise competitiveness in the host country can be increased directly or indirectly by the tech spillover effect, competition effect, association effect all caused by FDI.By using cointegration test, Granger causality test and VAR, this paper has made empiric analysis of impact from reer on industrial and employment structure both in China and India. The result indicates that the appreciation of reer of RMB lifts the proportion of tertiary industry in GDP and increase the employment while makes some nagetive effects on the secondary industry employment.On certain degree, it promotes the transfer of rural labor to other sectors. On the whole, the appreciation of reer of RMB can help to improve industrial structure in the long term while cause short-term pressure on the employment. The appreciation of reer of Rupee boosts the proportion of secondary industry in GDP and employment, but will give negative effection on the tertiary industry on the short term while still have positive effet on the long term. On the whole, the appreciation of Rupee won't do any help to the improvement of industry structure.