The Impact Of Exchange Rate Fluctuation On Regional Economic Growth

Since August 11,2015, the recently RMB exchange reform, the exchange rate of RMB against the U.S. dollar from 6.23RMB/Dollar to 6.53 RMB/Dollar, has fallen nearly 5%. Although the RMB exchange rate which was intervened heavily by the central bank gradually stabilized, the expect of the devaluation of RMB is still existence. In the long run, the RMB exchange rate will devalue slightly. So in the new normal economic times, what kind of the influences will be produced to China’s economic growth, especially China’s regional economic growth, by the changes of the RMB exchange rate? In this paper, after reporting the related theories and literature review, I put forward a regional economic growth model which contains to use the market potential index to measure the regional economic association from supply perspective on the basis of C-D product function. On the basis of the model, I theoretical analyze the mechanism of action of exchange rate changes on regional economic growth by two ways: ”exchange rate-FDI-economic growth” and ”exchange rate-import and export-economic growth ”. Thus, the exchange rate factor is added to the model, I come up with a condition which regards to the devaluation of the RMB to promote economic growth and the exchange rate by using indirect quotation: the product of all items which contain the market potential partial derivative is less than 1. In the model, I also introduce the local fiscal expenditure, financial development scale and knowledge spillover as the control variables. Then, the coefficients of market potential and the exchange rate is test by using the common panel model. The result show when the coefficient of the market potential for regional economic growth is greater than 0 and less than 1, the coefficient of the exchange rate for regional economic growth is negative. And the result of the spatial panel model which use reciprocal of the gap of economic growth in the different regions as the spatial matrix is the same: when the coefficient of the market potential for regional economic growth is greater than 0 and less than 1, the coefficient of the exchange rate for regional economic growth is negative. And then I also analyze the spatial effect of the related variables. Moreover, this paper by two models has obtained the following conclusions:(1)Capital stock, labor, local fiscal expenditures and knowledge spillover are important factors to promote the regional economic growth;(2) The relationship between the financial development scale and the regional economic growth is inverted U-shaped rather than linear.