The RMB Exchange Rate Changes On Foreign Direct Investment Implications

Since1980’s, the scale of foreign direct investment (FDI) in China is increasing. As the policy advantage and superior geographical conditions, Nanjing has made great achievements in attracting foreign direct investment. However, with the accelerating process of economic globalization, the composition and purpose of foreign direct investment have taken place major changes. Especially, since the reform of RMB exchange rate system in2005, along with the continued appreciation of RMB, the change of the foreign direct investment in Nanjing is an important factor affecting the Nanjing regional economic development. Therefore, the study of how RMB exchange rate changes on foreign direct investment implications has important practical significance for further effectively attracting foreign investment and promote local economic development.Firstly, this paper reviews domestic and foreign theoretical studies in the relationship between exchange rates and foreign direct. Then, it gives the theoretical explanations of the inherent mechanism between exchange rate, international trade and foreign direct investment, and makes the conclusion that exchange rate changes on Foreign direct investment has a significant impact based on theoretical analysis, pave the way for further empirical analysis.Secondly, this paper describes the status quo of the foreign direct investment in Nanjing area, summing up some features of the foreign direct investment in Nanjing area, followed by comparing the foreign direct investment in Nanjing with that in the other13cities in Jiangsu province and15sub-provincial cities and then reveals the current problems of attracting foreign direct investment in Nanjing.After that, based on a total of12annual data from1995to2006, this paper establishes an empirical model, analyzing the impact to foreign direct investment in Nanjing area of various factors that influence the extent and impact of the variable way, come to the conclusion that RMB exchange rate change is the major factor on impact of foreign direct investment. Then through the co-integration test and other measurement methods in different countries currencies against the RMB real exchange rate and the country’s direct investment in the Nanjing area of the relationship between the tests found that there are a variety of different results, indicating the exchange rate on the impact of foreign direct investment the formation of a combination of factors, rather than a simple, single factors.Finally, the above analysis comes to the final conclusion that the RMB’s real exchange rate is an important reason for foreign direct investment, but from different home countries of foreign direct investment and the country’s currency against the RMB’s real exchange rate relationship is different. Then, this paper gives appropriate policy recommendations on how to better attract foreign investment in Nanjing area.