The Study On Effect Of Volatility Of RMB Exchange Rate On Foreign Direct Investment

With the highly integration of the world economy, the inflow foreign directinvestment expanded increasingly, developing from high-speed growth intomaturity, and its capital structure also changed dramatically. Obviously, FDImakes a great contribution to China’s economic development. On the other hand,since the reform of Exchange Rate System of RMB in2005, the volatility ofexchange rate increases, this influences FDI in a confused way. Exchange rateeffect foreign direct investment mainly through its level and volatility the twoaspects, therefore, to study the impact of RMB exchange rate on China’s foreigndirect investment has practical significance.The thesis firstly make a detail explanation of the history of the RMBexchange rate regime and the concept of the exchange rate and its volatility,current level refers to the monetary value, volatility refers to the degree offluctuation in currency values. Then on the basis of a mathematical modeltheoretical analysis of FDI mechanism, using VAR models, Cointegration test,error correction model, Granger causality test, etc. to analyze the long-term andshort-term relationship between FDI and RMB exchange rate, exchange ratefluctuations from overall.The result of empirical research through the annual data from1994to2013shows that in long-term perspective, the RMB real effective exchange rate wouldappreciate inhibit foreign direct investment, exchange rate volatility has no directimpact on foreign direct investment; while the exchange rate’s inhibition in theshort term is more obvious than the long-term, the impact of exchange ratefluctuations is still not significant; and result also shows the Chinese market sizeand the opening up degree have a positive impact on the inflow of FDI. Finally, based on the characteristics of FDI in our country and the empiricalanalysis result, the thesis give some policy proposals to attract foreign directinvestment, such as we should actively support and fully guide foreigninvestment, standardize the exchange rate system and investment regime, keepthe exchange rate stable while striving.