Measuring And Comparison Of BRICS’ International Capital Mobility

Since the reform and opening up, China has enjoyed a rapid growth of international trade and FDI inflow, national economy achieved sustained development, and has overtaken Japan to be world’s second largest economy after U.S. Accompanied by the deepening of opening up, linkage between China and the world economy becomes more inseparable. At the same time of enjoying an export-oriented economic development achievement, it’s inevitable to be affected by fluctuations in external demand and international financial crisis or other negative factors. Especially around the year of2008. as the massive inflow of international speculative short-term capital pushed up inflation and the expected appreciation of RMB, economic development of China experienced a severe ordeal. Therefore, reasonable measuring of capital mobility and its relationship with economic growth would be of important theoretical significance and documentary value.As an important indicator of measuring effects of monetary policies and the barriers of capital flow, international capital mobility has drawn widely attention of many scholars and central banks. But till now, there are no mainstream theoretical models and analysis patterns for the academia in how to describe the capital mobility of a certain country objectively and accurately. The intertemporal current account model based on intertemporal consumption-smoothing theory has its unique advantages in measuring a country’s international capital mobility. This paper tries to extend the model to include effective exchange rates. Empirical analysis using the data of China has shown that since the Reform and Opening up, international capital mobility stayed at a low level overall. But the situation has improved significantly these years, barriers of international capital flow have been smoothed away greatly and the opening up of capital project accounts is on the acceleration. Construction of the theoretical consumption smoothing current account sequence and comparison with actual sequence also proves that effective exchange rate is an important factor of measuring international capital mobility.Furthermore, the paper conducts empirical tests of capital mobility for the other four BRICS countries (Brazil, India, Russia, and South Africa) with the same analytical framework of China. Significantly different from the situation of China, although estimation of capital mobility decreases obviously with variable effective exchange rate introduced into the model, it fails to pass coefficient significance test (South Africa as an exception). The author summarizes3possible reasons of this result in the conclusion section. To verify the necessity of extending intertemporal current account model with effective exchange rate, this paper tries to construct theoretical consumption smoothing current account sequence of India and South Africa, and then do some comparison with the actual series. The result indicates that exchange rate factor is an important variable to improve explanatory power and applicability of theoretical model, regardless of significance level of capital mobility coefficient.Then, the author analyzes causality relations between international capital mobility and economic growth based on conclusions of this paper and existing literature. Granger causality test indicates one-way relationship from capital mobility to economic growth. Further regression test proves that improvement of capital mobility could accelerate the GDP growth. This phenomenon is quite obvious for the BRICS, but weaker for9OECD countries.Finally, with summary of the empirical test, the author puts forward3targeted suggestions promoting international capital to better serve the economic development of China. Although this paper has shown that improvement of capital mobility could significantly boost economic growth, it should be compatible with the stage of economic development. The government ought to take serving development of real economy as a principle to carry forward financial reforms gradually. Only in this way, financial risks of capital market reform on the real economy could be minimized to the lowest level.