Abstract
While China’s economy has been subject to a wide range of economic reforms since 1978, its capital account is still restricted. The issue of capital account convertibility is widely debated both in China and by foreign observers. This study contributes to the understanding of China’s capital account by constructing new indices for China’s financial openness. First, we construct alternative indices, both of which suggest that China has experienced significant increases in its financial openness, albeit beginning at very low levels in the late 1970s. Then, we construct an index for financial openness at the provincial level from 2000. As expected, the eastern provinces exhibit much higher levels of financial openness than the provinces located in the central and western parts of the country. Taken together, these indices enable a clear overview of national and regional financial openness across time and are well suited for future studies on determinants and effects of financial openness in China.
Notes
1. It has been has argued that financial liberalization played a decisive role in a number of other prolific financial crises, including Chile in 1982, Sweden and Finland in 1991–1992, and Mexico in 1994 (e.g. Diaz-Alejandro Citation1985; Velasco Citation1987; Dornbusch et al. Citation1995; Calvo and Mendoza Citation1996; Sachs et al. Citation1996; Jonung Citation2008).
2. For more on the effectiveness of capital controls, see e.g. Càrdenas and Barrera (Citation1997), Cardoso and Goldfajn (Citation1998), Montiel and Reinhart (Citation1999), De Gregorio, Edwards, and Valdés (Citation2000), and Binici, Hutchison, and Schindler (Citation2010). For detailed discussions and analyses on the capital account and various forms of national economic performance, see, among others, Quinn (Citation1997), Eichengreen (Citation2001), Stiglitz (Citation2003), Edison et al. (Citation2004), Bekaert, Harvey, and Lundblad (Citation2005), Desai, Foley, and Hines (Citation2006), Gourinchas and Jeanne (Citation2006), Kose et al. (Citation2009), and Quinn and Maria Toyoda (Citation2008).
3. These 11 categories are as follows: capital market securities; money market instruments; collective investment securities; derivatives and other instruments; commercial and financial credits; guarantees, sureties, and financial backup facilities; ODI; foreign (inward) direct investment; liquidation of direct investment; real estate transactions; and personal capital movement.
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