Rmb Exchange Rate Movements Impact Studies Of Fdi

Foreign direct investment (FDI) in China grew fast since Chinese reform and opening, reaching 90 billion dollars by 2009 and greatly promoting Chinese economic development. Although FDI is embodied in the production section in the form of physical resources, it actually flows in the form of currency. Therefore, it's not sufficient to analyze the impact factors just from the aspect of the real economy. In recent years, there have been great changes to the exchange rate regime and exchange rate level after the reforms in 1994,2005 and 2010. In the context of the increasing imbalance and the trend of RMB appreciation lasting for a long time, it's of significant theoretical and practical meanings to investigate into the effects of RMB exchange rate changes on FDI.The study firstly summarizes the research about the relationship between exchange rate changes and FDI, with different research and empirical results home and abroad. Then we analyze the development of FDI in China and the evolvement of RMB exchange rate regime as well, which lay the foundation for the establishment of empirical model later. On the basis of foreign research, we develop the theoretical model to demonstrate the effects of exchange rate changes and volatility on the FDI. Combining the theoretical research and Chinese current conditions, we establish the empirical model and adopt the panel data of FDI from the largest 19 countries and areas and the bilateral real exchange rate, which would help get more stable and reliable results. The empirical analysis demonstrates that the depreciation of RMB would encourage the flow in of FDI while the appreciation would not. As the RMB exchange rate historically tended to be fixed, the relationship between the exchange rate volatility and FDI was not significant. However along with the deepening RMB exchange rate reform, the effects of volatility would become evident. Based on the results we come up with according policy recommendations.The contribution of the study is the use of panel data of FDI from the largest 19 countries and areas which would represent the whole FDI in China instead of aggregate analysis would result in more stable and reliable conclusions among the current discrepant opinions. And the exchange rate volatility is taken into consideration, which has strong practical meanings.