Will RMB Exchange Rate Fluctuation Affect Investment of China’s Manufacturing Industries?
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| Title | Will RMB Exchange Rate Fluctuation Affect Investment of China’s Manufacturing Industries?
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| Author | Wang Jinbin and Ni Ying |
| Organization | School of Economics, Renmin University of China |
| Email | wjinbin@ruc.edu.cn；cindanyy@outlook.com |
| Key Words | RMB Exchange Rate; Manufacturing Industries; Investment in Fixed Asset |
| Abstract | This article does an empirical research on the relationship between RMB exchange rate fluctuation and investment of China’s manufacturing industries, relying on the classic three channels. Our result shows that the depreciation of RMB will increase China’s manufacturing industries’ investment in fixed assets through the demand channel. Exchange rate fluctuation could also affect investment through change of variable inputs. The proper reason for this particular phenomenon could be that the price elasticity of demand of China’s manufacturing output is too high, in which case the role of the substitution effect outweighs the output effect. Therefore, the increase of variable input prices due to RMB depreciation in the other way improves domestic investment. The increase of capital cost caused by RMB depreciation will decrease investment, however, its impact has a lagged effect. Our conclusion suggests that the change of RMB exchange rate is an effective policy tool to regulate domestic manufacturing investment. The empirical result on our two propositions concerning the sensibility of different manufacturing industries’ investment to exchange rate fluctuation is though in line with the theory of logical deduction, it doesn’t pass the significance test. |
| Serial Number | WP1121 |
| Time | 2016-10-13 |
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