Exchange Rate And Economic Growth

Part 1 Economic growth is always a charming subject in economics and itis very important to a developing country. Many economists in chinamake great effort to think how to promote economic growth. So, it'sbecome the core of research to explore factors affecting economic growthand the anti-action that economic growth exerts to these factors. Normally,the theory of economic growth emphasizes these factors that directlyinfluence economic growth , such as capital,labor and technology. Butwe find that there are many other very important indirect factorsinfluencing economic growth, and exchange rate is one of the centralindirect factors under open economic circumstance. If exchange rate in acountry is misaligned, this country's economic growth may beundermined, because exchange rate misalignment may undermine thiscountry's international competence. So, it appears very important toresearch the influence of the exchange rate of RMB on economic growth.On the other hand, economic growth always has opposite reaction toexchange rate. During the period of rapid growth, the current accountsurplus and the foreign capital inflow often cause real exchange rateappreciation. But foreign capital rapid outflow caused by economyrecession always gives rise to exchange rate depreciation, brings aboutserious money crisis and destroys economy finally. The exchange rate ofRMB faces up to the pressure of appreciation in recent years which isrelative to china's rapid economy growth. Part 2 This paper points out firstly these objective economic facts aboutexchange rate's influence on economic growth and growth's influence onexchange rate. Then along two channels it carries on analysis. The first channel is the mechanism about exchange rate's influenceon economic growth. The mechanism is described as the following chart1. Chart 1 Mechanism about exchange rate's influence on growth From chart 1, we can find exchange rate may influence growth bythree ways. ①exchange rate → foreign trade →growth, ②exchange rate→FDI→ growth, ③ exchange rate →other ways→ growth. Werespectively analyze exchange rate → foreign trade,foreign trade→growth,exchange rate →FDI,FDI→ growth firstly. In order toincluding exchange rate's influence on growth by other ways and givingthe quantitative relation between exchange rate and economic growth. Wealso build the general theoretical and empirical model that real exchangerate influences growth directly. The second channel is the mechanism about growth's influence onexchange rate. The mechanism is described as the following picture. Chart 2 Mechanism about growth's influence on exchange rateFrom chart 1, we can find that for growth being the main policy aim,nominal exchange rate is influenced by government directly. We also findthat growth influences exchange rate by three ways: ①Balassa-Samuelson effect which analyzes how growth influencesexchange rate from supply or long-time. ② the H-M-K hypothesis fromdemand or short-time. ③ the other ways, such as the interest differencebetween one's own country and foreign country, supply and demand inforeign exchange market, money policy. In order to including growth'sinfluence on exchange rate by other ways and giving the quantitativerelation between economic growth and exchange rate. We build theSVAR empirical model that growth influences real exchange rate directly.Because equilibrium exchange rate is decided by some basic economicfactors, we research equilibrium exchange rate of RMB. Finally, the paper discusses the forming mechanism about exchangerate of RMB. Part 3 There are five charters. The first charter is introduction, includingthe importance of such theme, the definition of important concepts, andso on. The second charter points out these objective economic facts aboutexchange rate's influence on economic growth and growth's influence onexchange rate. From the history of development of international moneysystem, we can find the history is just the circular process that is fromcoordination to counter-coordination,...