How the Changes in Exchange Rate Affect the Chinese Economic Growth?

Abstract: This paper examines how the exchange rate affects Chinese economic growth. First, we go through the literature about exchange rate and how it affects the economic growth. We respectively analyze the transmission mechanism of RMB real effective exchange rate on the impact of Chinese import, export and foreign direct investment. We use the quarterly data from 1994 to 2016 and the method of cointegration test, Granger Causality test. From the test we found that the appreciation of RMB has a negative effect on Chinese economic growth. Further more, the correlation between total export and real effective exchange rate is negative. Meanwhile, the correlation between total import and real effective exchange rate is negative. For FDI, we found that the appreciation of RMB will decrease FDI.