The Impact Of G-3 Exchange Rate Volatility On FDI Inflows In China

Since the 1980s, the scale of China's foreign direct investment has been expanding, in which China's economic development played an increasingly important role. The FDI inflows were affected by many factors, among which G-3 exchange rate volatility has an important influence on China's FDI absorption. Since Breton Woods System collapsed in 1973, world financial markets have shown the trend of liberalization, and let all the financial situation be more volatile. The exchange rates between the major countries, especially the G-3 exchange rate, began to move sharply and frequently, and the influence of G-3 exchange rate fluctuations on a country's FDI inflows has become one of the interesting topics to many scholars.But in the current studies, many scholars have reached two diametrically opposite conclusions of whether G-3 exchange rate volatility really is to "promote" or "hinder" the FDI inflows of a country. This paper argues that such a situation occurs because most previous studies were in accordance with a country as a whole to select the data, and did not break down the data into various sectors further. Since the impacts of exchange rate fluctuation on different industries are often not the same, the general study of all trades as a country based on annual data may cause offset of the effects on different industries, which can lead to insignificant test results. Therefore, this article seeks to break China's FDI into the various sub-sectors, in order to analyze more detailedly and forecast more accurately G-3 exchange rate fluctuation on the impact of China's FDI inflows.This paper is divided into four chapters. In the introduction we review and interpreter the fluctuations and volatility of G-3 exchange rate since 1973, with a summary of the researches about the impact of the current exchange rate fluctuations on a country's FDI inflows. The second chapter mainly describes the channels and effect analysis about the impact of exchange rate changes on a country's FDI inflows. The third chapter describes the total amount of China's current FDI absorption as well as the status of the industry FDI inflows, and direct to a large fluctuation of G-3 exchange rate in the year. We list the big affect sectors of the FDI data, to predict which part has been changed largely by the great G-3 exchange rate fluctuations. At the same time, we refer to the "gravity model" and used panel data to study the G-3 exchange rate fluctuations on the representation of China's major trade impact of FDI inflows quantitatively, to validate the predictive analysis in the above content. The empirical results show that China's leading industries such as manufacturing are changed largely by the G-3 exchange rate fluctuations, with large and opposite directions. In the forth section we set out the relevant policy recommendations to prevent the affection of the G-3 exchange rate volatility on FDI inflows in China's various industries. The final part is the summary.