The Study On The Impact Of RMB Exchange Rate Changes On Foreign Direct Investment

Since the outbreak of the global financial crisis in 2008,the global economy suffered a great impact.And not only the developed countries lacked of the force of recovery,but also the developing countries had slow speed of growth.In general,the world demand went through a totally downturn.In addition,the growth rate of China GDP fell to below 8% since 2012.Therefore,the domestic economy should be transformed urgently;the upgrade of Industrial structure has become imminent in the meantime.In this context,the level of absorbing foreign investment remained stable growth in China.According to the report data of United Nations,the world foreign capital inflows fell 13% in 2016,and there has about 2.3% contrarian growth of foreign investment in China,as a result,the absorption of FDI playing the increasingly important role on the development of China's economy and the optimization of industrial structure.From the perspective of exchange rate,RMB exchange rate system has been improved gradually,and the central bank reduced the intervention of the RMB exchange rate.On the other hand,the flexibility of RMB exchange rate increasing quickly.As the changes of exchange rate would have inflection on the benefits and risks of transnational operations,it is of practical significance to explore the influence of the changes of RMB exchange rate on the scale of absorption of foreign investment and investment structure.This paper firstly reviews the relevant literature of predecessors,and summarizes the methods and shortcomings of the previous research.Secondly,the paper provides the theoretical basis for the following research through studying the mechanism of the influence of exchange rate on FDI.Then it analyzes the development process and current situation of RMB exchange rate system and foreign investment in China,and intuitively compares the relationship between real effective exchange rate of RMB and the overall scale of the absorption of China's as well as three industries' foreign investment.Then the method of Unit Root Test,Cointegration Analysis and Error Correction Model are used to analyze the model.In addition,when it comes to setting the model,the paper takes the situation of China's economic development,the world economic situation,and the degree of opening to the outside world as explanatory variable,and comprehensively studies the circumstance that the scale and structure of foreign investment which was influenced by the changes of RMB exchange rate.According to the results of the empirical analysis: From the overall point of view,the risen of real RMB effective exchange rate has a positive effect on the development of FDI;and from the perspective of three industries,the relationship between RMB real effective exchange rate and the foreign investment absorption of the first industry is not clear.However,in the secondary and tertiary industries,the appreciation of the RMB exchange rate will encourage the development of absorption of foreign investment,especially for the secondary industry.At the same time,when the real effective exchange rate of RMB rises,the promotion role for the foreign investment absorption in secondary industry is more than the tertiary industry,while the decline for the real effective exchange rate of RMB will also inhibit the secondary and tertiary industries about absorbing foreign investment.Therefore,the changes for the real effective exchange rate of RMB plays less important role on structure of foreign investment and the upgrading of domestic industrial structure.Last but not least,the paper bases on the current domestic and international economic situation and the circumstance of exchange rate changes.Combining with the conclusions of the study,the paper puts forward and analysts the corresponding policy recommendations and the future research direction.