Empirical Evidence, Theoretical Framework And Chinese Application Of Growth Effect Of Financial Account Openness

Since the new normal of Chinese economy,facing new challenges,economic reform and openness have become the prime political choice.Especially financial liberalization has become the main direction of Chinese economic adjustment.But unfortunately,although neoclassical economics has developed theoretical framework to analysis the growth effect of financial openness,three waves of empirical tests still can't find a robust evidence.On the other hand,little literature discusses the openness policy,no matter it is based on empirical results or theoretical analysis.Consequently,there still lack a bridge between empirical evidence and theoretical hypothesis and even has no theoretical discussion of financial openness policy.The research condition can hardly bear the political choice of Chinese economy,thus become the main approach of this paper.After a general review of relative literatures,we notice that all these empirical tests are truly close to their goal of obtaining a robust result.The key problem locates in the difference of de jure and de facto measurements,which means there must be some economic variables affecting political effect,that makes those empirical tests still struggle in variables definitions,mechanism analysis and sample covering.The conflict also exists between the direct and indirect effect of financial liberalization.The former one already has robust evidence to support that financial openness can boost investment to raise economic growth,while the later one only be verified by some micro-data but be rejected by macro-data.Furthermore,neoclassical economics already issued such nexus,however,nearly all DSGE models with financial openness only use it as political background then discuss monetary or exchange policy,which inevitably do not care whether the mechanism description can meet economic reality.All the three problems above must be solved before further discussion of Chinese development and openness policy of the coming new period.To solving those questions in this dissertation,we start with theoretically drawing of the whole picture of concerned mechanism from those empirical tests.According to the reality-based mechanism,we separate each coin in the international capital market into two side: inflow and outflow.Because foreign capital inflows are not for charity but investment returns,and are not born automatically,there must be economies can benefit from capital outflows.This leads us to the hypothesis that different kinds of economies will benefit from financial openness differently.In Chapter III of this paper,we use linear model,initial non-linear model with interactors and threshold panel data model to test the hypothesis,and obtain robustness with dynamic panel data model in respect of variable definition,dynamic panel data model with threshold effect in respect of model specification,and unbalanced panel data model in respect of sample choice.By introducing threshold effect and separating financial openness into inflow and outflow directions,we find convincing evidence of growth effect of financial openness,which gives reality meaning to the political discussion of Chinese capital market openness.As to the issue of macro-support of spillover effect of financial openness,we analyze the two ways of spillover effect of financial openness in Chapter IV of this paper,and suggest capital outflow can raise total factor productivity(TFP for short)by optimize the capital allocation globally,and inflow can do the job only if the host economy has the late tech-advantage and the later one lack macro-empirical evidence due to micro-data contains the conception of result of late tech-advantage while macro-data does not.After embed the mechanism into a TFP growth with R&D input system,we employ general simulated method of moments(GSMM)as the estimation strategy in respect of data character and model specification and obtain a significant result.In Chapter V,based on the empirical evidence of this paper,we establish a DSGE model with open financial capital market in respect of foreign direct investment and portfolio investment inflows and debt inflows.By doing so,we introduce three political parameters into the model and,by comparing the impulse response with economic reality and theoretical logic,we correct one mistake of the popular financial movement friction function.After answering those three questions,Chapter VI focuses on the original issue of this paper,the relationship of Chinese economic growth and financial openness.By allocating the direct and indirect effect of financial openness into the two conflicting sides of Keynesian scale-driven power and Schumpeter tech-driven power,which is the storm-eye of the debate on nowadays Chinese economic growth power within relative literatures,we link our research with Chinese economic reality and political discussion and employ a intermediate effect system containing two ARMA functions of financial openness with scale growth and late tech-advantage,and a TVP-SV-SVAR model capturing the time varying structure of scale and late tech-advantage growth power in the history of Chinese economic development.The regression results indicate that,according to this paper's judgement of today's development stage of Chinese economy,scale-driven growth power is still capable of boosting Chinese economic further development,while late tech-advantage growth power's effect become more significant in long-run and its frequency is much less than before.Thus,this paper promotes some structural choice of financial openness policy.From the scale-driven power version,we argue that Chinese financial openness policy should take FDI and debt investment openness as the main direction,with cautious policy of portfolio openness,and together with proper political guidance,minimize its negative effect on inter-structural reformation policy.And we think Chinese economy as the biggest manufacture in the world,it also needs an industrial openness policy to maximize the growth effect of financial openness from both inflow and outflow sides by letting developing industries overcome their saving-constrain and fully developed industries seek more profit globally at the same time.On the other hand of TFP side,Chinese financial openness policy should take care of distinguishing industries with late tech-advantage,who can benefit from such an open capital market,while also need allow global investment of some certain industries to achieve higher level of capital allocation.More importantly,R&D input has become more essential for absorbing foreign advanced technology as for self-innovation.