## Effects of Capital Flow Liberalization: What is the Evidence from Recent Experiences of Emerging Market Economies?

_IMF Working Papers, November 16, 2012_

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## Bibliographic details
- Authors: Tahsin Saadi Sedik, Tao Sun
- Published: November 16, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781589068032.001

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### Summary
- This paper analyzes the experiences of emerging market economies (EMEs) that have liberalized capital flows over the past 15 years with respect to macroeconomic performance and risks to financial stability.
- The paper uses panel data regressions and examines variation in effects depending on thresholds.
- As an application, the paper explores possible effects of liberalization on China by applying the coefficients of explanatory variables to the corresponding variables of China in 2012–16.

### Key empirical findings
- Greater openness to capital flows is associated with:
  - higher growth
  - higher gross capital flows
  - higher equity returns
  - lower inflation
  - lower bank capital adequacy ratios
- The effects vary depending on thresholds (heterogeneous impacts across different conditions).

### Application: China (2012–16)
- The paper explores potential effects of capital flow liberalization on China by applying estimated coefficients from the panel regressions to China’s corresponding variables in 2012–16.

### Subjects and policy-relevant topics covered
- Balance of payments
- Capital account liberalization
- Capital adequacy requirements
- Capital flows
- Financial regulation and supervision
- Financial sector policy and analysis
- Financial sector risk
- Financial services
- Real interest rates

### Keywords (as used in the paper)
- Capital account liberalization
- Capital adequacy requirements
- Capital flow liberalization
- Capital flows
- China
- dynamic panel data specification
- emerging market economies
- equity liberalization index
- Financial sector risk
- flow liberalization
- further liberalization
- Global
- interest rate liberalization
- liberalization
- liberalization in China
- liberalization of capital flow
- Real interest rates
- restrictiveness index
- simulations
- WP

*IMF Working Paper No. 2012/275*

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