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

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  • Tahsin Saadi Sedik
  • Tao Sun

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.

Suggested Citation

  • Tahsin Saadi Sedik & Tao Sun, 2012. "Effects of Capital Flow Liberalization: What is the Evidence from Recent Experiences of Emerging Market Economies?," IMF Working Papers 2012/275, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/275
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mr. Tamim Bayoumi & Ms. Franziska L Ohnsorge, 2013. "Do Inflows or Outflows Dominate? Global Implications of Capital Account Liberalization in China," IMF Working Papers 2013/189, International Monetary Fund.
    2. Alfred Schipke, 2016. "Capital Account Liberalisation and China's Effect on Global Capital Flows," RBA Annual Conference Volume (Discontinued), in: Iris Day & John Simon (ed.),Structural Change in China: Implications for Australia and the World, Reserve Bank of Australia.
    3. Verikios, George, 2015. "The Implications for Trade And FDI Flows From Liberalisation of China’s Capital Account," Conference papers 332655, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Mirdala, Rajmund & Svrčeková, Aneta, 2014. "Financial Integration, Volatility of Financial Flows and Macroeconomic Volatility," MPRA Paper 61845, University Library of Munich, Germany.
    5. Mehmed Ganić & Mahir Hrnjić, 2021. "How Does International Financial Integration Really Affect Post-Transition Countries' Growth? Empirical evidence from the CEE-10 countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(3), pages 117-136.
    6. Mark Kruger & Gurnain Pasricha, 2016. "What to Expect When China Liberalizes Its Capital Account," Discussion Papers 16-10, Bank of Canada.
    7. Rose Cunningham & Eden Hatzvi & Kun Mo, 2018. "The Size and Destination of China's Portfolio Outflows," Discussion Papers 18-11, Bank of Canada.
    8. Anton V. Navoy, 2018. "Concept of the Exchange Rate Policy and Capital Control of the National Economy in Terms of Global Finance Instability," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 1, pages 71-86, February.

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