Indian Journal of Science and Technology

Abstract

This paper focuses on the Monetary and Financial Dilemma in China recently. As is known to all, the FDI (Foreign Direct Investment) has a significant effect on the economic development of this country in China. The increase of FDI and the export by foreign funded enterprises not only lead to a double surplus of balance of payments, but also speed up the growth of china’s foreign exchange reserves which leads a change on the monetary base in this country, and eventually impact on monetary and financial condition. Paper based on the monthly data from 2001 to 2014 including China’s FDI and export by foreign funded enterprises and money supply. Firstly, test the causality among FDI and FDI export and the money supply used the Granger Causality Tests. Secondly, build two functions of pulling rate and contribution rate. The results of Granger Causality Tests have proved that FDI and FDI export is the granger cause of money supply. FDI and FDI export make a significant contribution to China’s money supply and it is one of the factors that lead to monetary and financial condition changed with a dilemma
Keywords: FDI, Granger Causality, Monetary & Financial Dilemma, Pulling and Contribution