Prasad e Wei - The Chinese Approach to

Prasad e Wei - The Chinese Approach to - WP/05/79 The...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
WP/05/79 The Chinese Approach to Capital Inflows: Patterns and Possible Explanations Eswar Prasad and Shang-Jin Wei
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
© 2005 International Monetary Fund WP/05/79 IMF Working Paper Research Department The Chinese Approach to Capital Inflows: Patterns and Possible Explanations Prepared by Eswar Prasad and Shang-Jin Wei 1 April 2005 Abstract This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. In this paper, we adopt a cross-country perspective to examine the evolution of capital flows into China, both in terms of volumes and composition. China’s inflows have generally been dominated by foreign direct investment (FDI), a pattern that appears to be favorable in light of the recent literature on the experiences of developing countries with financial globalization. We provide a detailed documentation of the evolution of China’s capital controls, a proximate determinant of the pattern of capital inflows. We also discuss a number of other intriguing hypotheses that attempt to capture the “deeper” causes underlying China’s approach to capital flows. In particular, we argue that some popular mercantilist-type arguments are inconsistent with the facts. We also analyze the recent rapid rise of China’s international reserves and discuss its implications. Contrary to some popular perceptions, the dramatic surge in foreign exchange reserves since 2001 is mainly attributable to non-FDI capital inflows, rather than current account surpluses or FDI. JEL Classification Numbers: F2, F3, F4 Keywords: Financial integration; foreign direct investment; international reserves; external debt; capital controls Author(s) E-Mail Address: eprasad@imf.org; swei@imf.org 1 We are grateful to Jahangir Aziz, Ray Brooks, Michael Dooley, Sebastian Edwards, Mark Wright, and participants at the NBER Capital Flows Conference, the Stanford China Conference, and a seminar at the China Center for Economic Research for helpful comments and suggestions. We are indebted to members of the IMF’s China team, from whose work we have drawn extensively. We owe a particular debt to Qing Wang, who provided many useful suggestions and comments. Ioana Hussiada provided excellent research assistance. This paper is forthcoming in an NBER volume on Capital Flows edited by Sebastian Edwards.
Background image of page 2
- 2 - Contents Page I. Introduction. ................................................................................................................. 4 II. The Chinese Patterns of Inflows and Some International Comparisons. ..................... 5 A. The Evolution of Capital Inflows. .......................................................................... 5 B. Foreign Direct Investment. ..................................................................................... 6 C. External Debt. ......................................................................................................... 8 III. International Reserves. ................................................................................................. 9 A. Recent Developments . ........................................................................................... 9 B. Implications of the Recent Reserve Build-Up. ..................................................... 13 IV. Viewing China’s Capital Inflows Through the Prism of the Literature on Financial Globalization. .......................................................................................... 15 A. Financial Integration and Growth . ....................................................................... 16 B. Financial Integration and Volatility . .................................................................... 16 C. The Composition of Capital Inflows Matters.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/25/2010 for the course ECO IntEco taught by Professor Andre during the Spring '06 term at UFRGS.

Page1 / 62

Prasad e Wei - The Chinese Approach to - WP/05/79 The...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online