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| 1 |
ID:
180636
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| Summary/Abstract |
In this paper, we analyze the role of macroeconomic management in developing countries’ economic take-off and structural transformation. We argue that developing countries face three leading challenges: market immaturity, lack of a developed financial system, and severe information asymmetry between international investors and domestic players. If not properly dealt with, these challenges can lead to macroeconomic volatility and fragility in economic development. Therefore, the government must intervene appropriately to address these challenges. By analyzing China's experiences in the era of reform and opening up (1978–2018), we find three important lessons: (i) It is important for the government to facilitate the entry and exit of enterprises in macroeconomic cycles, relying not only on market signals but also on administrative orders and measures of institutional reform; (ii) Financial reforms should be implemented in order to promote financial deepening and channel savings into investment; and (iii) The government should carefully manage capital account liberalization in order to preserve financial stability while promoting foreign investment, international trade, and industrial upgrading.
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| 2 |
ID:
116481
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| Publication |
2012.
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| Summary/Abstract |
In this paper we study the determinants of gross capital flows, project the size of China's international investment position in 2020, and analyze the implications for the renminbi real exchange rate if China liberalizes the capital account. We assume in this exercise that the renminbi will have largely achieved capital account convertibility by the end of the current decade, a timetable consistent with recent proposals by the People's Bank of China. Our analysis shows that if the capital account were liberalized, China's gross international investment position would grow significantly, and inflows and outflows would become much more balanced. The private sector would turn its net liability position into a balanced position, and the official sector would reduce its net asset position significantly, relative to the country's GDP. Because of the increasing importance of private sector foreign claims and the decreasing importance of official foreign reserves, China would be able to earn higher net investment income from abroad. Overall, China would continue to be a net creditor, with the net foreign asset position as a share of GDP remaining largely stable through this decade. These findings suggest that the renminbi real exchange rate would not be particularly sensitive to capital account liberalization as capital flows are expected to be two-sided. The renminbi real exchange rate would likely be on a path of moderate appreciation as China is expected to maintain a sizeable growth differential with its trading partners.
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| 3 |
ID:
086592
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2009.
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| Summary/Abstract |
Is the Chinese growth miracle - a remarkably high growth rate sustained for over two decades - likely to persist or are the seeds of its eventual demise contained in the policies that have boosted growth? For all its presumed flaws, the particular approach to macroeconomic and structural policies that has been adopted by the Chinese government has helped to deliver high productivity and output growth, along with a reasonable degree of macroeconomic stability. There comes a point, however, when the policy distortions needed to maintain this approach could generate imbalances, impose potentially large welfare costs, and themselves become a source of instability.
The traditional risks faced by emerging market economies, especially those related to having an open capital account, do not loom large in the case of China. In the process of securing protection against external risks, however, Chinese policymakers may have increased the risks of internal instability. There are a number of factors that could trigger unfavorable economic dynamics that, even if they don't rise to the level of a crisis, could have serious adverse repercussions on growth and welfare. The flexibility and potency of macroeconomic tools to deal with such negative shocks is constrained by the panoply of policies that has supported growth so far.
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| 4 |
ID:
168772
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| Summary/Abstract |
The neoclassical growth model predicts that capital account liberalization could potentially enhance economic performance; however, there is no consistent empirical evidence to support this positive association. Using a novel dataset of Chinese capital account openness, this paper demonstrates a positive relationship between capital account liberalization and aggregate economic performance. The difference‐indifferences method is used to capture the causal effect of capital account liberalization on economic performance by taking advantage of variations in both external financial dependence and the progress of capital account openness. We investigate three channels that could strengthen this positive relationship using a firm‐level dataset. We find that capital account liberalization could: (i) alleviate the degree of resource misallocation, and this effect is more significant in industries relying heavily on external finance and in regions with more favorable business environments; (ii) enhance firms’ total factor productivity; and (iii) promote innovation. Our findings suggest that a strategy of gradual openness will leave some leeway not only for improvement in domestic markets but also to mitigate exposure to unfavorable global shocks.
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| 5 |
ID:
137600
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| Summary/Abstract |
his paper argues that the twin surpluses in China's balance of payments will disappear in the future as a result of external and internal structural changes. China's current account surplus will diminish as a result of the decline in the goods trade surplus, the expanding service trade deficit and negative investment income. China's capital account might shift from surplus to deficit as a result of shrinking net direct investment inflows and more volatile short-term capital flows. When the twin surpluses no longer exist, the normalization of the US treasury bond yields will be sped up, terminating the one-way appreciation of the RMB exchange rate; the People's Bank of China's pressure to sterilize inflows will be alleviated, and new problems for the People's Bank of China's monetary operation will emerge; new financial vulnerabilities for the Chinese economy will arise. Finally, the present paper provides some policy suggestions for the Chinese Government to deal with the declining twin surpluses.
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