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

33 Pages Posted: 26 Sep 2013

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Franziska Ohnsorge

International Monetary Fund (IMF)

Date Written: August 2013

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.

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

JEL Classification: F3, F02, F4, F60, G10

Suggested Citation

Bayoumi, Tamim and Ohnsorge, Franziska, Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China (August 2013). IMF Working Paper No. 13/189. Available at SSRN: https://ssrn.com/abstract=2331324

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6333 (Phone)
202-623-4795 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Franziska Ohnsorge

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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