A Survey On China's Capital-Account Liberalization Measurements

Economic theory suggests that unfettered international capital flows can foster a more efficient allocation of resources, provide opportunities for risk diversification, and help promote financial development. In recognition of these potential benefits, governments of industrial countries have undertaken widespread capital account liberalization over the past quarter-century. Many attribute efficiency gains, increased diversification opportunities, and financial development in these countries to opening up capital markets.A natural policy prescription, therefore, therefore, is to extend this process of international financial integration to other, economically less developed, countries. While capital account liberalization is desirable, it is important to proceed slowly. Regardless of the liberalization process, unregulated capital flows could facilitate the occurrence and spread of currency crises.Given the potential importance of countries' policies on capital account liberalization and the different lessons one might draw based on which articles one reads in this expanding literature, it seems an opportune time to review the evidence. One source of the debate on the role of capital account liberalization is the mixed set of empirical results derived in the literature. A possible reason for this ambiguity arises from the fact that different studies have applied different empirical measures, reflecting the difficulty in identifying and quantifying capital account liberalization in a consistent manner across a wide set of countries.China Has fully relaxed exchange controls for current-account transactions substantially in 1994 and still maintained relatively stringent restrictions in capital account. In a long run, it's inevitable for China to liberal the capital account gradually due to the increasing control cost and potential losses it brings. How can we take the advantage of capital liberalization without impairing the healthy development of national economy? The first step is to get a comprehensive and accurate understanding of it.This paper surveys the literature on the various measurements of capital accountopenness and China's capital liberalization from 1982-2003 in retrospect. Various empirical measures used to gauge the presence of controls on capital account transactions in China from different perspectives.In Section I of this survey, we define the concept of capital liberalization and specify the boundaries of our research.Based on the concept annotations, the research describes a range of different measures of capital account openness and also demonstrate that the two measures that have been most widely used in studies of the effects of capital account liberalization on growth, one that attempts to capture the intensity of controls and another that merely records their presence, paint a roughly similar picture of the state of capital account controls in Section II.Section HI reviews the post-1982 development in capital liberalization.The purpose of Section IV is employing the two major indicators that attempt to capture the intensity with which controls are imposed in China.Section V, however, is not replication but comparisons between the two indicators. We show that the outcome indicator is more supportive than rule-based indicators. Then the paper proposes some suggestions for further process on this timely and important topic.