| Capital account liberalization was once seen as an inevitable step along the path to economic development for developing countries. But it remains one of the most controversial and least understood policies of our day. Views on this issue have flourished since the early 1990s, when international financial deregulation and the associated capital flows from industrial to developing countries, appeared to be fueling faster growth and catch-up. While a sudden series of financial crises have made it clear that international capital flows have risks as well as benefits. These crises started with industrial countries in the European Exchange Rate Mechanism (ERM) in 1992 and 1993, then moving on in a significantly more virulent form to developing countries with the Mexico crisis in 1995, the Asian crisis in 1997-1998, and the Russian and Latin American crisis in 1998-2000. All these economies suffered heavy damage in the crises.Now, China is in the process of opening its capital account. From the activity of attracting foreign investment to the establishment of B-share and QFII, the degree of opening is going further. Under the circumstances, it is urgently necessary for us to review the effects of capital account liberalization from theoretic view and empirical view.This paper focuses on the effects of capital account liberalization on economic growth and then put forward the strategy of China for opening. This paper includes six parts:The first part: The definition of capital account liberalization from qualitative view. At the same time, this part gives an outline of the opening process in China and introduces the status of capital control in China.The second part: The definition of capital account liberalization from quantitative view. On the basis of summarizing several measures, the author puts forward a feasible means to measure the degree of deregulation in China, and then finds out that China's capital account is in the middle level of opening.The third part: The analysis of the effects of capital account liberalization on growth by using the existing economic theory. There are some positive benefits, such as the effect of output, the effect of maturity transformation, the effect of portfolio investment,the effect of financial deepening, the effect of welfare increase. But capital account liberalization may bring fluctuation to economy, especially for developing countries.The fourth part: The analysis of the effects of capital account liberalization on growth by using regressive models in econometrics. Owing to the diversity of statistical methods, there are different results on this issue. Some found no relation, some found significantly positive relative, other found uncertain relation between deregulation and growth. And the result makes no change even if we take the variables of investment and financial deepening into consideration.The fifth part: The analysis of the effects of capital account liberalization on growth by using representative cases: Chile, Korea and Poland. Among these, Chile is regarded as the most successful example. After research, we realize that the developing countries can endure the cost of liberalization if they reform step by step. Meanwhile, the sequencing and the correspondent reform on the exchange rate system are important factors for successful deregulation.The sixth part: Research on the implement strategy during the process of capital account liberalization in China. This involves two aspects: one is the speed of liberation; the other is the sequencing of liberalization. The gradual and slow-speed deregulation is suitable to China. On the question of sequencing, the author advances that we need to consider both external order and internal order, and brings forward a framework in brief.There are three innovations in the paper. The first is that I remark on different measures and design a suitable means to measure the degree of liberalization in China. The second is that examine the effect of capital account liberalization on growth, investment and financial de... |
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