About The Rmb Exchange Rate: An Empirical Study Of Relationship Between Foreign Direct Investment In China

On the background of economic globalization, outward foreign direct investment between countries has more and more important significance. Along with the growth of China’s economy and the accelerated pace of’going out’, the development of China’s outward foreign direct investment is rapid. RMB exchange rate is facing the pressure of appreciation, and it effects the outward foreign direct investment of China’s enterprises to a certain extent. In this paper, I reviewed the existing research and found that there were not a unified conclusion about the relationship between exchange rate and outward foreign direct investment. Next comes the process of China’s exchange rate system reform and the development of China’s outward foreign direct investment and a detailed analysis of the characteristics of the present outward foreign direct investment. Then I used empirical analysis model with RMB real effective exchange rate, per capita gross domestic product, outward foreign direct investment flows for1985-2010date and analyzed how the RMB exchange rate reform affect China’s overall outward foreign direct investment in the short and long term. I also used the2002-2010time series date to discuss the relationship between exchange rate and outward foreign direct investment in various industries in China. The study found that exchange rate had positive impact on China’s outward foreign direct investment in the short and long term. The appreciation of RMB would promote the increase of China’s outward foreign direct investment. Before the year of1994, the exchange rate had negative impact on China’s outward foreign direct investment. Then after the year of1994, that exchange rate had positive impact on China’s outward foreign direct investment. The exchange rate reform in2005had more positive impact on China’s outward foreign direct investment than the reform in1994. Outward foreign direct investment in most industries and the exchange rate show significant positive correlation. Finally, according to the characteristics of RMB exchange rate and China’s outward foreign direct investment, combined with empirical results, I put forward some policy recommendations on how to develop China’s outward foreign direct investment.