Study Of The Effect Of The RMB Exchange Rate Change On FDI Inflow

Since the reform and opening up, China has been committed to opening up and speeding up the construction of market economy, while attracting foreign direct investment is precisely one of the important parts. With the continuous deepening of reform and opening up, China's investment environment is improving, and the operating environment of the market becomes mature. More and more foreigners come to China for investment, making China one of the countries that attracting foreign direct investment most in the world. The study of foreign direct investment is naturally inseparable from RMB exchange rate which is the most important comprehensive price index during international economic activities. July 21, 2005, China started the exchange rate reform, thus, the RMB has maintained a modest and gradual appreciation of the pace. June 19, 2010, China's central bank decided to further promote the reform of RMB exchange rate, strengthen the flexibility of RMB exchange rate .In this series of reform initiatives in the exchange rate, the impact of the RMB exchange rate change on FDI has become a topic of general interest.In this paper, we first divide the China's FDI into trade-based FDI and non-trade-based FDI according to the different investment purposes of multinational companies, and then study the impacts of the RMB exchange rate change on different types of FDI inflow. Through the establishment of the theoretical model between exchange rate change and different types of FDI, and from the microscopic view of seeking profit maximization which is the purpose of international investors, we reveal the relationships between the host country exchange rate change and the different types of FDI inflow by the methods of mathematical analysis; Then, using the monthly data of 2006-2010, we conducted an empirical analysis about the relationship between the RMB real exchange rate and FDI inflow. By introducing the opening rate economic indicators and the industrial added value index, the establishment of cointegration equations, vector error correction model (VEC) and the VEC model based on generalized impulse response functions, we reveal the exchange rate changes on China's FDI inflow of short and long term impact, further verify the theoretical model is correct, and fundamentally explain the impact of the RMB real exchange rate on different types of FDI inflow. Finally we put forward some proposals for investment in China, This paper illustrates in-depth the effect of the RMB exchange rate change on FDI inflow and there will be a high value of guidance ande reference in theory and practical application.