A Study Of Fdi's Impact On China's Current Account Of Bop

Since 1990's, some currency crises occurred in different economies and their financial stability were destroyed, the real economy were in recession, even some of them were in social unrest. Although there were many factors causing these crises, their current accounts of BOP were continuously deficit before the crises. More and more scholars and policy makers have realized that the current account deficit would probably make an economy be in the risk of currency crises and hence it is worth studying the causes of leading to an economy's current account deficit at closer range.With the development of globalization and financial liberalization, the scale of capital flow is more and more large, China's FDI inflow increases continually and the stocks grow constantly, its negative impact on China's economy is appearing gradually, particularly that FDI is able to have important and complicated impact on the current account of BOP and some of them are direct, the others are indirect; some of them are positive, the others are negative, therefore it is of great theoretical and practical significance to study FDI's long-run and composite impact on the current account.First, this paper analyzes the macroeconomic implications of current account, the Sachs Model of foreign exchange reserves and currency crises prevention, then analyzes the mechanism of FDI's influence on the current account according to the structure of IMF's Balance of Payments Manual (5th ed) and puts forward that FDI can influence the current account through"the trade effect","the return effect"and"the service effect". On the basis of which this paper establishes a systemic framework to study the problem.With regard to the trade effect, this paper first builds a general equilibrium model to explain the problem based on the H-O model and the specific factor model, finds that if FDI mainly sale their goods in the host countries'markets, goods and factors will probably be substitutes; if FDI mainly sale their goods to international markets, goods and factors will probably be complements, then analyzes the effects of different FDI and the correlation of commodity trade and service trade.With regard to the return effect, this paper improves the classic Kalecki Model and indicates its limitation to apply so that puts forward a new approach to analyze the impact of FDI's investment profits outflow on the current account under the background of global capital mobility. At the same time,this paper analyzes the mechanism that developing countries'introducing FDI can promote their investment overseas and the effect on their trade. With regard to the service effect, this paper first analyzes the mechanism of FDI's impact on the host countries'service trade development, then divides the eleven categories in the service account into two parts for analysis: FDI's impact on the host countries'"royalties and license fees",and other service sub-accounts. To the first one, this paper analyzes developing countries disadvantage based on the trade of global R&D, royalties and license fees. To the second one, this paper analyzes the determinate factors of comparative advantage in service trade, FDI's long-run effect on developing countries'service trade and the impact of service trade on commodity trade based on the applicability of comparative advantages theory in commodity trade.Finally, this paper analyzes the composite effect of FDI's impact on the current account theoretically and builds a general model for evaluation, from which indicates that FDI's long-run impact on the current account is not static but dynamic and the final result depends on the comparative relationship among the forgoing three effects, then does empirical research on the long-run relationship between China's FDI and the current account using two stages approach of linear co-integration and nonlinear co-integration, and finds that they are nonlinear, dynamic, positive correlation over the period of present samples .This paper gives corresponding conclusions and some policy suggestion based on the theory analysis and empirical research: China should adjust the relevant policies of FDI, foreign trade and investment to adapt to the subjective of maintaining the current account surplus.