RMB Exchange Rate Fluctuation And FDI

Foreigner Direct Investment (FDI) has played a key role in Chineseeconomic development. However, the researches on influencing factors ofFDI were mainly focus on the market scale, production cost, and foreigninvestment recruiting policies. In the context of RMB keeping appreciating,the study of how exchange rate affects FDI inflow has important practicalsignificance.Considering the motivation and effect on Chinese economy of FDI indifferent industries varies, and the composition of Chinese FDI changes, ifonly focus on the influence on total FDI, we can’t fully understand themechanism of how exchange rate impact FDI, nor can we conclude adynamic and long-run solution for a subdivided policy target.On the basis of existing theories of how Exchange Rate affects FDI, thisarticle used contegration tests and error correction models to analyze the longbalanced relationship and the short unbalanced relationship betweenexchange rate and the2dominate proportions of FDI, as of Manufacturingand Real Estate, by60quarters’ data from1998to2012. And then useGranger causality test to validate the result. Empirical result showed that, RMB real exchange rate appreciating willdefer Manufacturing FDI inflow, but encourage real estate FDI, the effect ontotal FDI is negative. In the end of the paper, policy suggestions to promotethe healthy development of FDI were given in accordance with Empiricalresults.