Capital Account Liberalization and Capital Movement in China

Abstract

Capital account liberalization has always been at the core of economic policymaking. China is a country which has chosen to go gradual in opening up the capital account. The present research seeks to manoeuvre aspects of capital account liberalization for the Chinese economy. An empirical investigation is run for ascertaining the particular influence capital controls has had on foreign direct investment in China which has outpaced other capital flows in the past decades. The model applied involves foreign direct investment inflows as the dependent variable while four variables are independent. The stationarity of the univariate series is checked with the use of Augmented Dicky Fuller test. The study concludes with theoretical understanding that full liberalization of the current account in China has overall benefited the economy. The outcome of the study suggests that there is no significant bearing of current account liberalization on foreign direct inflows.