The Influence Of Real Effective Exchange Rate To Fdi In China

Along more and more foreign direct investment(FDI) following into China, FDI has already became one of the crucial factors to stimulate economy blossoming,which affects rate of employment, bringing high-technology, inspiring the quantity of import and export and communicating with other countries on politics, economy and culture. The high growth rate of FDI is depending on the government encouragement policies and steady Chinese foreign rate policies. On July 2005,RMB exchange rate reform which base on the market supply-demand and reference a basket of currencies began in order to make RMB exchange rate becoming more flexible. RMB foreign rate not just sting to dollar, and RMB began to appreciate by 8% since 2005.From Oct 2008, toxic subordinate debt asset of America triggers global finance crisis. Most developed countries'economic situation became deteriorating.According to Global Investment Report in 2009 from United Nations Conference on Trade and Development,the global FDI had decreased to $1.2 trillion in 2009 from $1.7 trillion last year. From report of Ministry of Commerce of P.R.China, the amount of Foreign Capital Actually Used was $5.89 billion, which had decreased by 22.5% over the same period of the previous year on Apr 2009 and the amount of FDI had been reduced on successive 7 months, including amount of foreign or joint-venture firm decreasing and bankruptcy.Obviously, researching the relationship between FDI and RMB exchange rate would be special and important, through which we may find new or creative approach to increase FDI inflowing in China and keep economic situation steadily growing. In this thesis, according to the theory of foreign direct investment, and combining with the practical situation in China, the author establishes the theoretical and econometrics models.In the econometrics models, not only analyze the influence of real effective exchange rate index on FDI, but also analyze the influence on FDI caused by GDP, wage and average rural population revenueThe results show there is positive relationship between RMB real exchange rate index and FDI in the market-oriented type of FDI, while negative relationship between them in the cost-oriented type of FDI. the theoretical and econometrics models prove the depreciation of RMB can lead to two polarity results of FDI inflowing. Meanwhile the empirical analysis also prove there is a negative correlation between the volatility of exchange rate and FDI. The independent variable of Wage, GDP and Average Rural Population Revenue have similar impact to FDI.The empirical research methods including Unit Root Test to test the time series' stationary behavior.The result shows first order stationary.Granger causality test tell us that real effective exchange rate index,GDP, average rural population revenue are FDI's Granger causality. Co-integration test shows and effective exchange rate index,GDP, average rural population revenue has long-term steady relationship. then building Error Correction Model, short deviation can amend long-term equilibrium.In all, GDP and wage are main factors to decide the amount of FDI inflowing.