Optimal capital account liberalization in China

Zheng Liu, Mark Spiegel and Jingyi Zhang

Journal of Monetary Economics, 2021, vol. 117, issue C, 1041-1061

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 average productivity than private firms. 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 of reforms; Misallocations; Welfare (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304393220300921
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Optimal Capital Account Liberalization in China (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:117:y:2021:i:c:p:1041-1061

DOI: 10.1016/j.jmoneco.2020.08.003

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().