Research On The Impact Of Capital Account Liberalization On Financial Stability

During the past decades,the implementation of capital account liberalization in countries around the world has improved the efficiency of capital allocation and led to the innovation of financial technology lots of countries.The inflow of international capital has improved the efficiency of the host country’s financial market.At the same time,it has met the capital needs of countries which target to achieve economic growth,promoted the development of the financial system and economic growth.However,the liberalization of capital account also brings many uncertainties to the direction and amount of capital flow.Historically,the process of capital account liberalization for decades has also been accompanied by some national and even regional financial crises,which reminds governments around the world to be cautious about capital liberalization.A stable financial system is the premise of steady economic growth.The practice of various countries shows that the impact of capital account liberalization on a country’s financial stability is a "double-edged sword".Some countries have achieved the development of financial markets and economic growth,and some have been affected by the financial crisis.There are country differences in whether a country’s capital account liberalization has a positive or negative effect on the stability of its financial system.Under the background of the continuous progress of the global capital account liberalization process,it is of great significance to study how to decide whether to open the capital account and when to speed up the liberalization of the capital account according to their own environmental conditions.Firstly,this paper summarizes the theoretical basis of the impact of capital account liberalization on a country’s financial stability by combing the literature.Then it analyzes the liberalization effect of countries adopting different capital account liberalization modes in practice,and theoretically analyzes that the financial stability effect of capital account liberalization will be affected by a country’s capital account liberalization degree,financial development level,institutional quality and financial structure.On this basis,it puts forward the research hypothesis that capital account liberalization will affect a country’s financial stability,And there is a threshold effect.Then,by selecting the annual data of 81 countries from 1996 to2018,this paper applicate the panel data regression model as well as the panel multi-threshold regression model to test and analyze financial stability effect of capital account liberalization.The results show that capital account liberalization has a positive impact on financial stability,and the impact has a threshold effect.Finally,the analysis of China’s actual situation shows that China’s initial conditions are at the medium level,but in the favorable range of capital account liberalization.China should pay attention to the coordinated development of various macroeconomic indicators and take the liberalization of capital account as a long-term strategy.