An Empirical Study Of The Impact Of Capital Account Liberalization On GDP Growth And Capital Inflows

Since China joined the WTO, along with the deepening financial reform, capitalaccount liberalization is an inevitable result. However, capital account liberalizationwould bring benefits but also risks.So it is particularly important to study the potentialimpact of capital account liberalization. This paper selects16emerging marketeconomies which have liberalized capital flows, and researches the data from1997-2010of these countries. This paper uses the panel regression to research theimpact of capital liberalization on economic growth and capital inflows. Then furtheranalyzes the potential impact of capital account liberalization on China based on theexperience of these countries, and finally put forward relevant proposals.Unlike most studies that focus on one indicator (eg growth), this study used twofinancial indicators to analyze the impact of capital account liberalization: economicgrowth and capital inflows,from more than one point of view to analyze the impact ofcapital account liberalization on a country. Based on previous studies, combined withthe current situation of China’s capital account controls,this paper uses panelregression model to analyze the relationship between capital account restrictionindicators and per capita GDP growth and capital inflows.Firstly, the paper selects Chinn and Ito’s KAOPEN data (KP) as restrictive index.Secondly, this paper selects eight samples of emerging countries to express therelationship between per capita GDP growth rate (GDPG) as the dependent variable,with capital account openness index (KP), the real effective exchange rate (REER),claims on the private sector (RCPS) as the independent variable through the panelregression style. Thirdly, it selects14samples of emerging countries, to express therelationship between the Capital inflows as a percentage of GDP(CI) as the dependentvariable, with capital account openness index (KP), per capita GDP growth (GDPG)and the United States real interest (RUIR) as the independent variable through thepanel regression.Finally, the paper analyzes the relationship between the variablesaccording to the coefficients of the empirical results.The empirical results show that: The per capita GDP growth rate has a positivecorrelation with KP and RCPS,and has a negative correlation with the REER, thestatistical relationships are significantly; The GDPG has a positive correlation withKP,RCPS and RUIR, the statistical relationships are significantly. Because thelarger the KAOPEN index, the larger the degree of capital account openness of a country, so the paper concludes: capital account liberalization can increase a country’sper capita GDP growth, and bring more capital inflows.Results of this study indicate that capital account liberalization can improve acountry’s per capita GDP growth levels, and promote economic development. Moreimportantly, the paper has also found that there is a strong positive contact betweencapital account liberalization and capital flows, indicating that removal of restrictionson capital account can encourage financial integration. While the measurement resultsof this article on16countries unable to capture the unique nature of some of China-such as the size and number of ongoing structural changes, but can also reveal thepotential impact of capital account liberalization for China in the short and long termon a certain degree.In addition to the empirical research, this paper analyzes the different impact ofdifferent modes of capital account liberalization from two perspectives:developed anddeveloping countries. Finally, through the analysis of the current situation, the papersuggests that China should adopt a progressive pattern to liberalize capital accountcontrols gradually, and introduces the opening sequence. Since China is not yet fullyequipped with the prerequisites of capital account liberalization, so they need designthe strategy of opening up China’s capital carefully. Meanwhile the governmentshould maintain the credibility and consistency of economic policy, so as to harvestgains of capital account liberalization while avoiding the attendant risks.