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The Impact of the Changes of RMB Exchange Rate on China’s FDI

Author: HanXingYu
Tutor: LiHuiFen
School: Shanxi University of Finance
Course: Finance
Keywords: RMB real exchange rate FDI VAR Granger causality test
CLC: F832.6
Type: Master's thesis
Year: 2014
Downloads: 9
Quote: 0
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Abstract


In late2013,RMB against the U.S dollar created new highs, enter6.0era.December31,2013,the RMB against the U.S dollar rose further by55basis points to6.0969a total of41times of the annual median price hit a new high, the cumulativeappreciation of3%, far exceeding the full-year rose of2012,which had an increase of1.03%. At present, China is in a critical period of industrial restructuring andtransformation, whether changes in the RMB exchange rate has an impact in ourcountry’s attracting FDI,and has what impact,and how to promote our industrialrestructuring and transformation by using FDI,this series of questions are very worthyof study. Therefore, in the context of RMB appreciation, the research that study RMBexchange rate on foreign direct investment become meaningful.Firstly, this paper analyzes the specific concepts of the nominal exchange rate,the real exchange rate and foreign direct investment, and studied the related theory ofexchange rates impact to FDI. Secondly, based on theoretical analysis and practicalanalysis studied the impact of the changes in the exchange rate and the exchange ratesystem to the introduction of FDI, and studied the transmission mechanism thatchanges in exchange rates to FDI. Third, return to China’s actual conditions,studiedthe changes in the RMB exchange rate since the Reform and Opening and its causes,and analyzed the current situation of China’s absorption of FDI from the source anddestination. Sources are analyzed the effect of changes in relative exchange rates ofthe United States, Japan and the EU to FDI,destination combine up of differentindustries studied the current situation that different industries absorbed FDI underconditions of changes in exchange rates. On the basis of these did an empiricalresearch. The results show that the short-term,the RMB against the U.S. dollar realexchange rate movements on U.S. direct investment has no influence, but in the longarn,real exchange rate of RMB against the U.S. dollar on U.S. direct investment toChina have continued effects. Whether short or long term,the RMB real exchangerate movements against the Yen on Japan’s direct investment, exist affect. But theRMB real exchange rate against the Euro on EU direct investment in China has nosignificant impact effects. RMB exchange rate is Granger cause actual animalhusbandry and fisheries, financial services and real estate FDI movements. Finally,propose corresponding policy recommendations based on the findings. Correspondingpolicy recommendations are: Maintain a stable RMB real exchange rate; Encourageforeign investment in high-tech industries to promote technological progress;Encourage foreign investment in basic industries and services to promote theupgrading of industrial structure; Expand the scale of foreign capital to developingcountries; Encourage RMB derivatives financial product innovation.In this paper, using both comparative analysis and empirical analysis methods,the main contribution of this paper is studied the impact of changes in RMB exchangerate on FDI separately from the source (country way) and destination (industry way)as well as the transmission mechanism. Grasp the impact of changes in RMB exchange rate on FDI from multiple angles making the conclusion more reliable.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Exchange rate,foreign financial relations
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