The Procvclical Effect Of The International Capital Inflows In China

After the financial crisis, the procyclical effect of the economic behavior becomes hot topic of the macroeconomic research areas. As the process of China’s capital account liberalization progress gradually proceeds, the impact of international capital flows on China’s macroeconomic is becoming more and more important. The outcome of the pro-cyclical effects of the international capital flows is serious and multi-layered. It’s not difficult to find that the in-flows of international capital are synchronously fluctuating with the data on China’s economic growth. There are a range of issues worthy of further exploration: whether there is correlation between international capital inflows and Chinese economic cycle; if there is, then whether the correlation is positive; etc. If the relationship between international capital flows and domestic economic do exists, then what factors lead to the inflow of international capital, and through what channel? Would the associated fluctuations of the two be prejudicial to domestic financial system, and make it more vulnerable? If it would, then what steps should be taken against these adverse effects? These problems are gradually attracting attention of domestic scholars, and they are also the topic of my paper. My paper starts with the basic theory of international capital flow, and then represents the current situation of several major forms of international capital flow. I will explore the relationship of these different forms of capital inflows and macroeconomic cycles, and make empirical analysis.The first part is introduction. As we all know, the Modern economic crises always related with international capital flows, and the newly international financial crisis was also pointed out to be closely associated with the pro-cyclical flows of international capital. Considering of the experiences of several major fluctuations, there seemed to be synchronization between China’s International Capital Flows and the macroeconomic. This is the background of my paper. A further exploration to the cyclical characteristics and the negative impact is the purpose of this study. After the question being put forward, I’ll introduce and define the concepts of my study and provide the basis for the later empirical analysis. At the end. the innovation of this research will be listed, as well as the direction of future research.In the second part, I’ll make a literature review of the pro-cyclical effects of international capital flows. A lot of research shows that the international capital flow does have pro-cyclical characteristics. Based on this I’ll show the research to explore the formation mechanism of pro-cyclicity. mainly from the various influencing factors of international capital concluded from literature.The third part, the paper will do the theoretical arguments about the procyclical effect of international capital flows. Through the expansion of the financial accelerator theory and intertemporal consumption model, it will be found the procyclical effect would be existed.The fourth part, the controls on international capital flows in China policy will be sort out, then I’ll describe the pathway and trends of international capital flows, then analysis the correlation coefficient of the GDP growth cycle and international capital inflows;The fifth part, analysis GDP growth and other influences on the capital inflows, with Granger causality test and VEC model;The last part consist of the main conclusions of the empirical paper and policy recommendations.