A Study On The Driving Factors Of Cross - Border Capital Flow

The factor driving cross-border capital flows is one of the important topics focused by economists from home and abroad. The existing literatures on FDI focused on property rights, regional, international, institutional, economic development and other factors and ones on financial capital flows focused on interest rate and exchange rate. Different from FDI existing for a long time, financial capital flows emerged in later20years of the20th century. In the beginning of the21st century, the amount of them increasing so rapidly that aroused extensive attention of economists. In this paper, the author attempts to use the method of general equilibrium to study the mechanisms of factors driving cross-border capital flows, assuming that different countries stand on the different stages of financial development. Starting from the micro dimension of the different stages of the exchange mode development, under general equilibrium existing, the paper proved that financial assets imbalance of supply and demand drives cross-border capital flows.After questions are presented in the introduction and the reviews of existing literatures are introduced in first chapter, in the second chapter, the method of mathematical model is used to explain the reason of the net capital flows from developing countries inflowing into developed countries. Compared with developing countries, developed countries have more perfect law and credit systems. In developed countries, financial market becomes the main exchange mode that leads to higher rate of product turning into financial asset. The supply and demand imbalance of global financial assets led that the people of developing countries go to buy financial assets of developed countries to smooth intertemporal consumption demand.Based on the results of the theory mode of the second chapter, in the third chapter, the author used the cross-nation data to empirically study how the comparative advantage of the financial development affected FDI flow. The comparative advantage law of financial development affected FDI flow of countries in different stages of development. The author explored that bank-based financial development is the main financial factors to attract FDI inflows in the less-developed countries and market-based financial development is the main financial factors to attract FDI inflows in rich countries. In the fourth chapter, the author continues to calibrate the theoretical conclusions of the second chapter. The author use method of empirical analysis to study the impact of the development of financial markets on the net inflow of financial capital, the size of the stock market on the net equity capital inflow and the issue size of the bond market on the net bond capital inflow. The results revealed that the size of the stock market was an important factor in attracting the net equity capital inflows and the issue size of the bond market is an important factor in attracting the net bond capital inflows.Reference to the theoretical conclusions of the second chapter and the empirical results of the third and the fourth chapter about the impact of financial development on the cross-border capital flows, the author discussed the driving forces of China’s cross-border capital flows in the fifth, sixth two chapters, found that the differences of cross-nation and Chinese characteristics both affected china’s cross-border capital flows. In the fifth chapter, the factors driving China’s FDI flow were empirically researched. About the factors driving China’s FDI inflows, the author suggested that China became to actively choose FDI inflow from passive absorption in the past time. About the factors driving China’s FDI outflows, the author found that the variable of finance, institution and nature resource had high significance level and Chinese enterprises avoided the risk of the host countries’imperfect law system with contracted projects in the host countries. The author also found that Chinese enterprises gained high technology and expand foreign markets by merging companies listed in the stock market of developed countries.The author further analyzed of China’s cross-border financial capital flows in chapter VI. First, after summarizing China’s long-term cross-border capital flows, the author discovered that the China’s government controlled private cross-border financial capital flows rigidly, channels and size of the flow approved is little. While the sum of the sovereignty wealth funds financed by the government is so great and the funds are operated mystically. Second, with the empirical analysis of China’s short-term capital flows, the author maintained that the difference between the NDF exchange rate of the RMB/USD in the offshore RMB market and the spot exchange rate affected China’s short-term capital flows significantly. The phenomenon was the result that China’s government intervened from the foreign exchange market.In the end of the paper, the author suggested that China should improve the various systems of law, credit and accounting censorship, promote the healthy development of the financial market, then it will increase the supply of financial assets and keep international balance of payments.