| 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 the opening up of capital markets.A natural policy prescription, therefore, is to extend this process of international financial integration to other, economically less developed countries. However, the consequences and desirability of capital account liberalization among developing countries has been quite controversial. People on one side of this debate will maintain those countries that open up to financial flows will set the stage for more rapid development. Those on the other side will question the advantages actually conferred by capital account liberalization and, furthermore, will argue that countries become more vulnerable to financial disruptions not of their own making when their governments relinquish control over the inflow and outflow of capital.It seemed that capital liberalization is the most difficult, controversial and risky issue in the process of economy liberalization of developing countries. The financial crisis in Latin America at the beginning of 1980's, the foreign exchange rate crisis in Mexico in 1994 and the recent Southeastern Asia financial turmoil, all of these relate to the deterioration of capital account. Therefore, how to fully understand the benefits and potential risks of capital account liberalization and how to maximize the benefits and minimize the costs through appropriate strategies and policies, have become the key issue that the developing countries have to face.With the advancing of reform and opening up of China, realizing the convertibility of RMB is not only the requirement of market economy, but also the requirement of involving into the world economy. In 1996 China accepted what the NO.8 of IMF accord required, realizing the convertibility of current account, after entering into WTO, capital account liberalization would undoubtedly be the focus of further reform. This paper objectively compares the advantages and disadvantages of capital account liberalization from the viewpoint of developing countries, hoping to get experience and tactics more beneficial and suitable to developing country and aim to offer some useful advice to the capital account opening up of China. It is organized as follows:Chapter one first introduces and explains the implications of capital account openness and relative concepts. Then it reviews the historical course of from capital regulation to capital account liberalization after the Second World War in developing countries; lastly it draws some features in common from their opening experience.Chapter two demonstrates relevant effect of open capital account in developing countries; it is the theoretical basis of better weighing the advantages and disadvantages of this reform.First, it introduces the neoclassical welfare effect analysis of capital account opening up:Product effect, consumption straddle adjustment effect and portfolio effect, then point out its logical defects. Then it discloses the internal link between capital account openness and currency crises through analyzing the background, causes, process and policy implications. Third, it examines the policies restrain effects of capital account liberalization. On the one side, an open capital account make it possible to avoid domestic tax, which would undermine the function of tax policy. Besides, in order to maintain the fixed foreign exchange system, an open capital would make the government sacrifice the autonomy of its currency policy. Lastly, it analyzes the external and unsymmetrical effects of capital accountliberalization in developing coun... |
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