An Analysis On The Correration Between RMB And Chines Foreign Direct Investment

Whether Renminbi is undervalued and it should be revaluated, and how to revaluate it, are controversial issues at present. The paper examines the relationship of the movement of Renminbi and foreign direct investment (FDI) in order to provide a theoretical guidance for China to continuously attract foreign direct investment and to increase direct investment abroad under the ongoing and upcoming reforms on the exchage regime in China.After reviewing the existing literature on the relationship between exchange rate and foreign direct investment, and after analyzing the effects of exchange rate on the current account, the capital and financial account, gross domestic production, and the equilibrium of an economy, the paper studies the correlation between real exchange rate and foreign direct investment in USA and China respectively and comparatively. By making use of the USA's data from 1983 to 2003 yearly and quarterly and China's data from 1988 to 2003 yearly, the paper's model and empirical results support four conclusions: 1) Real exchage rate affects significantly negatively on foreign direct investment inflow. 2) The volatility of real exchange rate is significantly correlative with foreign direct investment, and the correlation is decided by specifical condition of the host country of investment. The investment that aims to acquire the market of host...