Ma Yu.A Study on the Estimation of the Desirable Range of Cross-border Capital Flows in Emerging Economies[M].Beijing:China Social Sciences Press, August 2023.

Introduction

Since the 1970s, the scale of global cross-border capital flows has increased significantly, which is widely regarded as an important factor to promote economic growth. At the same time, under the impact of cross-border capital flows, emerging economies have broken out one crisis after another, and have been "shearing" by international capital for many times. In this context, people are starting to rethink the advantages and disadvantages of capital account opening versus cross-border capital flows for emerging economies. With the international financial crisis in 2008 as a turning point, people's attitude towards capital account opening has changed significantly. Before 2008, it was widely believed that the full opening of capital account was conducive to the free flow of capital, the optimal allocation of global resources, the improvement of economic efficiency, and the benefit of emerging economies because of insufficient internal savings. External savings can be obtained through capital inflows, promoting faster economic development. Yet multiple financial crises have made it clear that full capital-account openness is detrimental, even harmful, especially for emerging economies. Therefore, in recent years, some scholars have put forward the suggestion of managed capital account opening. Managed capital account opening is not equal to capital control, but an effective combination of micro-level capital free flow and macro-level aggregate control, the main purpose of which is to curb the negative impact of massive cross-border capital inflow and outflow, rather than capital flow itself.

The research conclusions of previous literatures basically believe that a large amount of capital inflow and outflow will have a certain impact on the normal and stable operation of the economy, but few scholars have defined and measured the specific amount of "large amount of capital". The purpose of this book is to measure a desirable range of cross-border capital flows for emerging economies, including China. The meaning of "desirable range" is that within this range, capital flows have a significant effect on economic growth, and outside the range, capital flows cannot effectively contribute to economic growth. Through the calculation of the sample of emerging economies, it is found that there is a double threshold effect between cross-border capital flow and economic growth in emerging economies. When the scale of capital flow is less than the first threshold value, capital flow has a significant negative effect on economic growth. When the scale of capital flow is between the two threshold values, capital flow has a significant positive effect on economic growth. When the scale of capital flow is greater than the second threshold value, capital flow has no significant effect on economic growth. The empirical results show that the desirable capital flow scale of emerging economies is: the ratio of total net capital outflow in one quarter to GDP in the current quarter is less than 12.15%, and the ratio of total net capital inflow in the current quarter is less than or equal to 23.20%, and the desirable range is (-0.1215, 0.2320). When the scale of capital flow is within the desired range, capital flow can significantly promote economic growth. When the scale of capital flows exceeds this desirable range, capital flows cannot significantly promote economic growth.

In 2015 and 2016, China also saw large-scale capital outflow, which had a significant impact on economic stability. Therefore, it is also very necessary to measure the acceptable range of China's cross-border capital flow scale, and control the cross-border capital flow within this range to avoid possible negative impacts. Based on the analysis of the current situation and characteristics of cross-border capital flows in China, this book builds a system dynamics simulation model of cross-border capital flows in China, and uses analytical tools such as Vensim to estimate the desirable range of cross-border capital flows in China in the next ten years. The calculation results show that the range of China's preferred net capital inflow in 2025 is [-1.96, 4.68] trillion yuan; China's preferred net capital inflow range in 2030 is [-6.07, 5.27] trillion yuan. When China's cross-border capital flow is in this desirable range, the capital flow will not have an impact on economic stability, and when the cross-border capital flow exceeds this range, it means that it may have a significant negative impact on the smooth operation of the economy, and measures need to be taken to contain the adverse impact.

Therefore, it is suggested that China should implement a managed capital account opening in the future, conduct principled supervision of cross-border capital flows, take cross-border capital flows as the main regulatory indicators, and keep cross-border capital flows in a desirable range conducive to China's economic development. We will use exchange rate policies, monetary policies, fiscal policies and foreign debt policies to regulate cross-border capital flows, and incorporate desirable cross-border capital flows into macro-prudential policy control objectives. China's long-term goal should be to jump from the defensive capital flow control to the active capital flow control, so as to prevent the risk caused by the reversal of capital flow and the large inflow and outflow of capital flow, and design a set of cross-border capital flow control policy system, using the economic influence of major countries and the international RMB to actively influence the global capital flow for our own use, and not be "shearing". Become a major beneficiary of global capital flows. （Author：Ma Yu）

编辑：王一贺