Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China
IMF Working Papers, August 28, 2013
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Bibliographic details
- Authors: Tamim Bayoumi, Franziska L Ohnsorge
- Published: August 28, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475532159.001
Executive summary and main findings
- The 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 show 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 suggests that capital account liberalization in China may trigger net portfolio outflows as large domestic savings seek to diversify abroad.
Methodology and model results
- Uses an econometric portfolio allocation model to quantify effects of capital controls on cross-border portfolio asset holdings.
- Key model outcome: capital controls significantly reduce cross-border portfolio asset holdings (phraseology preserved from source).
Implications for China and global capital flows
- Capital account liberalization can lead to large gross inflows and outflows.
- Net direction of flows is context-dependent; for China specifically, the model indicates potential for net portfolio outflows driven by domestic savings diversification.
- Policy relevance: liberalization decisions in China carry global implications through changes in portfolio investment flows.
Subjects and keywords (as listed)
- Subjects: Balance of payments, Bonds, Capital account, Capital account liberalization, Financial institutions, Financial markets, Stock markets, Stocks
- Keywords: average equity, bond yield, Bonds, capital account, Capital account, Capital account liberalization, capital flows, FDI liberalization, financial development, foreign currency, Global, inflow restriction, investment outflow, market portfolio, outflow restriction, portfolio assets, portfolio flows, portfolio investment flow, portfolio investment inflow, portfolio investment outflow, sovereign bond, Stock markets, Stocks, WP