Analysis On The Impact Of RMB Exchange Rate On Different Types Of FDI

The main form of capital inflow to China is foreign direct investment which can be easily affected by RMB exchange rate.It is of great practical significance to study the impact of RMB exchange rate on FDI since China is in the new phase of economic reform.The paper begins with the theoretical analysis.Firstly,this paper expounds four theories related to the impact of exchange rate,namely,the Wealth Effect Theory,the Cost Effect Theory,the Risk Effect Theory and the Real Option Theory.Secondly,the author analyzes the mechanism through which the exchange rate can affect export oriented FDI and market oriented FDI respectively.Thirdly,because of the different procedure in currency exchange,export oriented FDI more likely to be affected than market oriented FDI.Lastly,this paper uses the framework of Sadewa(2000)and add the product-export ratio into the framework to do further research.Conclusions drawn from the framework is compatible with four theories mentioned earlier.The exchange rate affects the export of foreign-funded enterprises,and then affects the capital input,that is,FDI inflow.The paper has also done some empirical analysis.Firstly,this paper gives a Statistical description of the data which comes from Chinese industrial enterprise database.Secondly,by constructing provincial panel data,the author concludes that export oriented FDI inflows in the eastern provinces of China are more vulnerable to the exchange rate.Moreover,the author carries the analysis on the basis of industry panel data and makes a conclusion that the effect of exchange rate on FDI inflows depends on the product-export ratio of each industry.The threshold regression based on the industry panel data also proves that there is a threshold value of product-export ratio that could divide the sample into to two regimes-?high product-export ratio? and ?low product-export ratio?.This helps to explain the effect of exchange rate on different types of FDI inflows.Based on the theoretical analysis and empirical analysis,this paper draws a conclusion.It is necessary to do the analysis by different types of FDI.What's more,exchange rate and its volatility can affect the scale of FDI inflows evidently.