Effects of Capital Flow Liberalization - What is the Evidence from Recent Experiences of Emerging Market Economies?

Abstract

This paper analyzes the experiences of emerging market economies (EMEs) that have liberalized capital flows over the past 15 years with respect to macroeconomic performance and risks to financial stability. The results of the panel data regressions indicate that greater openness to capital flows is associated with higher growth, gross capital flows, and equity returns and with lower inflation and bank capital adequacy ratios. The effects vary depending on thresholds. As a potential application of these findings, the paper explores the possible effects of liberalization on China by applying the coefficients of explanatory variables to the corresponding variables of China in 2012-16.

Keywords: Capital flows, China, Emerging markets, Capital account liberalization, Capital flow liberalization, emerging market economies, capital flows, dynamic panel data specification, simulations, capital flow, capital flow liberalization, capital adequacy, capital account liberalization, liberalization of capital flows, liberalization of capital, capital inflows, equity returns, capital adequacy ratios, capital outflows, capital markets, capital adequacy ratio, reer, capital movements, capital account convertibility, capital transactions, capital controls, net capital flows, openness to capital flows, border capital flows, real effective exchange rate, capital growth, speculative capital, equity p

JEL Classification: C23, F32, G18, P43