Empirical Analysis And Countermeasures Of Changes Of RMB Exchange Rate's Impact On China's FDI Inflows

Since China's reform and opening up in1978, along with the domestic economy with the world's economy ever closer and the global economic integration deepening, the scale of introduction of foreign direct investment in China is also expanding rapidly. Foreign direct investment has been an important part of China's economic development and one of the dynamic mechanisms of economic growth. As the main economic lever and an important means of macroeconomic control of a country, exchange rate plays an important role in the macro-economy. Exchange rate changes and adjustments will make a profound and extensive influence on the operation of a country's economy from internal to external levels and from micro to macro aspects.The relationship of exchange rate and foreign direct investment (FDI) has been the most important topics of international economics. Since the 20th 80's, there have been many scholars who began to study the role of exchange rate in foreign direct investment. The study of the relationship between exchange rates and FDI are from two aspects, namely the changes of production cost led by exchange rate'changes and the risks arising from exchange rate'fluctuations. At present, the global financial crisis turned from the U.S. subprime mortgage crisis has made the world's foreign direct investment slowdown, and has also brought some negative effects to foreign direct investment in China. Therefore, in order to maintain our country's economy sustained, healthy and rapid development, there is important practical significance to study the effect of RMB exchange rate on China's FDI inflow from the theory aspect and to provide the decision of China's related policies with recommendations.This paper analyzes the cases of RMB exchange rate and foreign direct investment in China firstly, and establishes the econometric model of China's actual state based on theory of international direct investment such as the theory of relative production cost and the theory of relative wealth. In order to explore the relationship of RMB real exchange rate and China's FDI inflows, this paper establishes four empirical models. This paper studies the relationship of RMB real exchange rate and China's FDI inflows through the method of Granger causality test, co-integration test, error correction model and impulse response analysis from the whole and the regional point of view. In order to study whether the RMB real exchange rate can influence China's FDI inflows through these two factors such as the production costs and wealth, and to arrive at the transmission mechanism of exchange rate impact of FDI, this paper introduces the variable of wealth and production cost, and selects China's GDP as the representative of wealth variables and China's average wage level as the representative of production cost variable. This paper studies long-run equilibrium relationship of the four variables of China's FDI inflows, the RMB real exchange rate, China's GDP, and China's average wage level of through establishing a VAR model (vector auto regression, VAR) and using co-integration test based on regression coefficient, namely the Johansen co-integration test, or JJ (Johansen-Juselius) test.The results of this paper shows: there is no long-term stable co-integration relationship between RMB real effective exchange rate and China's FDI inflows, but there exists long-term stable co-integration relationship between the bilateral real exchange rate of RMB against the dollar, yen and euro and U.S., Japan and the European Union direct investment in China. This relationship is negative correlation. There exists short-term dynamic non-equilibrium relationship between the bilateral real exchange rate of RMB against the dollar, yen and euro and U.S., Japan and the European Union direct investment in China. The relationship between RMB real exchange rate and China's FDI inflows is verified. There is long-term stable co-integration relationship between the bilateral real exchange rate of RMB against the dollar, yen and euro and U.S., Japan and the European Union direct investment in China. RMB real exchange rate will influence China's FDI inflows by effecting China's GDP and average wage level. The transmission mechanism of exchange rate impact on FDI has been verified. On this basis, this article put forwards to some policy recommendations for Chinese government and enterprises from macro and micro level.