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Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China

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  • Tamim Bayoumi
  • Franziska Ohnsorge

Abstract

This paper assesses the implications of Chinese capital account liberalization for capital flows. Stylized facts from capital account liberalization in advanced and large emerging market economies illustrate that capital account liberalization has historically generated large gross capital in- and outflows, but the direction of net flows has depended on many factors. An econometric portfolio allocation model finds that capital controls significantly dampen cross-border portfolio asset holdings. The model also suggests that capital account liberalization in China may trigger net portfolio outflows as large domestic savings seek to diversify abroad.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/189.

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Length: 32
Date of creation: 28 Aug 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/189

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Keywords: Capital account liberalization; China; Capital inflows; Capital outflows; Capital flows; Reserves accumulation; portfolio flows; financial development; bond; stock market; bonds; portfolio investment; money market; financial markets; financial sector; bond yield; stock market capitalization; bond yields; bond market; stock adjustment; sovereign bond; financial sector liberalization; domestic bonds; equity market; financial system; equity markets; outstanding bonds; bond markets; stocks bonds; financial repression; stock market liberalization; stock adjustments; domestic foreign currency; financial assets; corporate bond; domestic financial markets; reserve requirements; hedging; bond portfolio; global stock market; stock market index; financial stability; interest rate liberalization; global bond; emerging market bond; financial market development; domestic interest rates; stock market prices; deposit rates; corporate bond market; bond flows; foreign equity; international finance;

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References

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  1. Jianping Mei & Jose Scheinkman & Wei Xiong, 2005. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," NBER Working Papers 11362, National Bureau of Economic Research, Inc.
  2. Eswar S. Prasad & Raghuram Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," NBER Working Papers 14051, National Bureau of Economic Research, Inc.
  3. Graciela Kaminsky & Sergio Schmukler, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," NBER Working Papers 9787, National Bureau of Economic Research, Inc.
  4. Harding, Don & Pagan, Adrian, 2002. "Dissecting the cycle: a methodological investigation," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 365-381, March.
  5. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
  6. Kristin J. Forbes, 2008. "Why do foreigners invest in the United States?," Working Paper Series 2008-27, Federal Reserve Bank of San Francisco.
  7. Tamim Bayoumi & Christian Saborowski, 2012. "Accounting for Reserves," IMF Working Papers 12/302, International Monetary Fund.
  8. Guonan Ma & Robert McCauley, 2003. "Opening China’s capital account amid ample dollar liquidity," BIS Papers chapters, in: Bank for International Settlements (ed.), China's capital account liberalisation: international perspective, volume 15, pages 25-34 Bank for International Settlements.
  9. repec:cto:journl:v:21:y:2001:i:1:p:119-131 is not listed on IDEAS
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Cited by:
  1. Cheung, Yin-Wong, 2014. "The Role of Offshore Financial Centers in the Process of Renminbi Internationalization," ADBI Working Papers 472, Asian Development Bank Institute.
  2. Kristin Forbes & Marcel Fratzscher & Roland Straub, 2013. "Capital Controls and Macroprudential Measures: What Are They Good For?," Discussion Papers of DIW Berlin 1343, DIW Berlin, German Institute for Economic Research.
  3. Hooley, John, 2013. "Bringing down the Great Wall? Global implications of capital account liberalisation in China," Bank of England Quarterly Bulletin, Bank of England, vol. 53(4), pages 304-315.
  4. Dong He & Paul Luk, 2013. "A Model of Chinese Capital Account Liberalisation," Working Papers 122013, Hong Kong Institute for Monetary Research.
  5. Rakesh Mohan & Michael Debabrata Patra & Muneesh Kapur, 2013. "The International Monetary System: Where Are We and Where Do We Need to Go?," IMF Working Papers 13/224, International Monetary Fund.

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