The Impact Of RMB Exchange Rate Change On The Inflow Of FDI

With the gradual improvement of the overall investment environment and the gradual diversification of the ways and channels for FDI inflow,the importance of the exchange rate and the other financial factors which can affect FDI inflow has come to a protrudent position. At the same time, we should note that the increasing growth of the inflow FDI to china occurred in the background of the gradual adjustment of RMB exchange rate and the exchange rate regime. Obviously, to explore how the RMB exchange rate change will effect foreign direct investment in our country is necessary.On the basis of the exchange rate and FDI-related theoretical analysis of the exchange rate mechanism of the impact of FDI and international practice analysis, this paper uses contegration tests and error correction models to analyze the long balance relationship and the short unbalance relationship among FDI ,RMB real exchange rate and RMB real exchange rate volatility based on annual total data from 1983 to 2007 and quarterly regional data from 1996 to 2007,and then use Granger causality test to validate the result.Empirical results show that RMB real effective exchange rate depreciation can boost our country's total FDI inflows in the short run; the RMB bilateral real exchange rate against the HKD and RMB bilateral real exchange rate against the USD depreciation can boost HK FDI to Mainland and US FDI to China in the short run; RMB real effective exchange rate volatility, the HKD bilateral real exchange rate volatility against the RMB and USD bilateral real exchange rate volatility against the RMB don't have an significant impact on our country's total FDI, HK FDI to Mainland and US FDI to China. In the long run, RMB exchange rate depreciation can boost our country's total FDI and HK FDI to Mainland, prevent the US FDI to China; The increase of RMB change rate volatility prevents our country's total FDI and HK FDI to Mainland ,and there is no significant impact on US FDI to China. Granger causality test results suggest that in addition to the US, there exists only a one-way causal relationship between exchange rate ,exchange rate volatility and foreign direct investment. There doesn't exist the Granger causality relationship between RMB bilateral real exchange rate against the USD, its volatility and US FDI .Finally, in accordance with the characteristics of our country's foreign direct investment and the conclusions of empirical test ,this paper puts forward policy recommendations which can attract foreign direct investment in the future.