Optimal Capital Account Liberalization in China

Zheng Liu, Mark Spiegel and Jingyi Zhang

No 2018-10, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: China maintains tight controls over its capital account. Its current policy regime also features financial repression, under which banks are required to extend funds to state-owned enterprises (SOEs) at favorable terms, despite their lower productivity than private firms on average. We incorporate these features into a general equilibrium model. Our model illustrates a tradeoff between aggregate productivity and inter-temporal allocative efficiency from capital account liberalization under financial repression. As a result, along a transition path with a declining SOE share, welfare-maximizing policy calls for rapid removal of financial repression, but gradual liberalization of the capital account.

Keywords: capital controls; financial repression; China; Sequencing reforms; misallocations; welfare (search for similar items in EconPapers)
JEL-codes: F38 G18 O41 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-05-27
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mon and nep-tra
Note: The first version of this paper was August 2, 2018.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Optimal capital account liberalization in China (2021)
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DOI: 10.24148/wp2018-10

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