Influence of the RMB exchange rate change on the Foreign Direct Investment Inflow section in China

by

ACKNOWLEDGEMENT

I would like to thank my supervisors, friends and family, without their support this research study would not have been possible.

DECLARATION

I adjudge that the entire content of this dissertation is entirely my own work; the content used in this dissertation has not been submitted before in any educational institution and represents my own opinion.

Signed __________________ Date _________________

ABSTRACT

The objective of this research study is to examine the relationship between exchange rate and foreign direct investment. China inflow of foreign capital and the development of foreign trade relations, “the use of foreign capital and development of foreign trade, China's opening of two important issues”. China inflow of foreign capital and the development of foreign trade relations is the combination of these two major problems, which lasted three years, under the premise of the theoretical relationships and empirical relationship between the comb international direct investment and international trade. It is a fact that FDI plays a key role for strengthen the economic status of developing countries. This research study analyzes the quarterly data of exchange rate and FDI from 1997 to 2011. FDI is the key factor for the economic prosperity of the country. In the highly interconnected and globalized current world economy, FDI plays an essential role in international business such that it is the largest source of external finance for developing countries, where FDI inward stock amounted to about one third of their gross domestic product (GDP). The world FDI inflow rapidly increased in the 1990s and reached $1.4 trillion in 2000 while FDI stock managed to gradually climb despite a sharp decrease in inflow after 2000. Despite the North American financial and credit crisis in the latter half of 2007, FDI inflows reached a record $1.5 trillion in 2007, a 17.8% increase as compared to 2006. The findings of this study indicate that exchange rate is the major factor which affects the FDI of the country. The Pearson correlation findings indicate that relationship exists among FDI and exchange rate of the country. Regression analysis were also carried out among FDI as dependent variable and CPI, Interest rate and GDP as independent variable and the findings indicates that FDI of the country is interrelated with CPI, Interest rate and GDP. The change in any one variable may affect the other variables. So it can be said that the exchange rate has different effects on foreign direct investor's profit when engaging in different types of FDI.

TABLE OF CONTENTS



ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER # 1: INTRODUCTION1

Background of the study1

Problem Statement2

Purpose of the Study3

Research Hypothesis4

Significance of the Study4

CHAPTER # 2: LITERATURE REVIEW6

The Booming Stage (1990-2001)8

FDI and Effects of Exchange Rate Volatility16

Research on Cost Factors and FDI Theory17

Labour Cost Effect19

Land Cost Effect20

CHAPTER # 3: METHODOLOGY23

Introduction23

Theoretical Model24

Data Set24

Data Analysis24

Regression Models25

CHAPTER # 4: FINDINGS AND ANALYSIS27

Descriptive Statistics27

Trend Analysis28

Regression29

Correlations35

T-Test37

Hypothesis Testing38

Summary38

CHAPTER # 5: DISCUSSION AND CONCLUSION40

Roles of Government in FDI Location Theory40

Expected Exchange Rate Effects on Different Types of FDI43

Implication and Discussion44

Conclusions47

Further Research49

REFERENCES50

CHAPTER # 1: INTRODUCTION

Background of the ...