Rmb Exchange Rate And The Relationship Of Fdi Research

Scholars have constantly examined the relationship between FDI and the exchange rate at host countries theoretically and empirically since the 1980s, but different scholars hold different opinions. In China, many scholars have carried out the research of the impact of RMB Exchange Rate on FDI. There are also no conclusions.2008, is the thirtieth anniversary of Reform and Opening-up. The introduction of FDI to china has been raised up quickly and become the main drive to Chinese economic development gradually since Reform and Opening-up in 1979. In order to satisfy with the advancement of economic globalization and the development of domestic economic, since 21st, June, 2005,Exchange Rate System of RMB has began to carry out the system which based on market supply, reference to a basket of currencies, managed floating exchange rate. It formally means the ending of a fixed exchange rate period.After the reform of exchange rate, RMB promotes its value constantly. RMB promotes its value in thirty-seven months continuously till September, 2008. And the value of RMB promotes more the twenty percent. Therefore, researches on whether the change of RMB Exchange Rate can make influence on the FDI which flows into China and whether the FDI which flows into China can make influence on the RMB Exchange Rate have theoretical and practical meanings.This thesis uses Co- integration Theory and Granger Causality test, analysis the interrelationship between the Nominal Exchange Rate of RMB and FDI through 43 months of monthly data form July, 2005 to December 2008. It is found that between RMB Exchange Rate and FDI there are not only exist long-run equilibrium relationship, but also exist two-way causal relationship, which the RMB Nominal Exchange Rate are the reason of FDI Granger, FDI is also the reason of RMB Nominal Exchange Rate Granger. According to the Co- integration equation by estimating, we can get a further conclusion that devaluing of RMB Exchange Rate will promote FDI, and flowing of FDI will bring pressure to the Exchange Rate of RMB. In this paper, further analysis found that the exchange rate influenced the flowing of FDI mainly through the effect of wealth and relative production costs. The FDI which flows into China changes the supply and demand of foreign exchange market. At the same time, more than 2 / 3 of FDI flows into the section of trade goods, resulting the increasing demand of non-tradable goods section and the promoting of exchange rate.The author believes, based on the research mentioned above, China should create a good environment for foreign investor from hardware and software; further promote the development of economic to raise our average benefits of capital; advance the establishment and improvement of our capital market and maintain the stability of Exchange Rate of RMB to enhance foreign investors' trust on RMB; further open up the services industry, expand the opening of the field of service and trade, resulting that FDI can transfer to non-tradable goods section and reduce its impact on the changes of exchange rate.