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China's Capital Flight: Pre- and Post-Crisis Experiences

Listed author(s):
  • Yin-Wong Cheung

    ()

    (City University of Hong Kong)

  • Sven Steinkamp

    ()

    (Universitaet Osnabrueck)

  • Frank Westermann

    ()

    (Universitaet Osnabrueck)

Abstract: We study China’s illicit capital flow and document a change in its pattern. Specifically, we observe that China’s capital flight, especially the one measured by trade misinvoicing, exhibits a weakened response in the post-2007 period to the covered interest disparity, which is a theoretical determinant of capital flight. Further analyses indicate that the post-2007 behavior is influenced by quantitative easing and other factors including exchange rate variability, capital control policy and trade frictions. Our study confirms that China’s capital flight pattern and its determinants are affected by the crisis event. Further, both the canonical and additional explanatory variables have different effects on different measures of capital flight. These results highlight the challenges of managing China’s capital flight, which requires information on the period and the type of capital flight that the policy authorities would like to target.

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File URL: http://web.fb9.uni-osnabrueck.de/repec/iee/wpaper/14502586_WP_103.pdf
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Paper provided by Institute of Empirical Economic Research, Osnabrueck University in its series Working Papers with number 103.

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Length: 41 pages
Date of creation: 16 Dec 2015
Date of revision: 16 Dec 2015
Handle: RePEc:iee:wpaper:wp0103
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