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

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Author Info

  • 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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Related research

Keywords: Capital account liberalization; China; Capital inflows; Capital outflows; Capital flows; Reserves accumulation; Capital account liberalization; portfolio flows; capital flows; financial development;

This paper has been announced in the following NEP Reports:

References

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  1. Jianping Mei & Jose A. Scheinkman & Wei Xiong, 2009. "Speculative Trading and Stock Prices: Evidence from Chinese A-B Share Premia," CEMA Working Papers 504, China Economics and Management Academy, Central University of Finance and Economics.
  2. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  3. Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-72, Summer.
  4. Kaminsky, Graciela Laura & Schmukler, Sergio L., 2002. "Short-run pain, long-run gain : the effects of financial liberalization," Policy Research Working Paper Series 2912, The World Bank.
  5. Kristin J. Forbes, 2008. "Why Do Foreigners Invest in the United States?," 2008 Meeting Papers 387, Society for Economic Dynamics.
  6. Tamim Bayoumi & Christian Saborowski, 2012. "Accounting for Reserves," IMF Working Papers 12/302, International Monetary Fund.
  7. 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.
  8. repec:cto:journl:v:21:y:2001:i:1:p:119-131 is not listed on IDEAS
  9. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
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Citations

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Cited by:
  1. 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.
  2. 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.
  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.

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