The Dynamic Relationship Between China´s Current Account and Capital Account An Empirical Analysis Based on 1982-2009

Balance of payments is one of the main economic goals for an open economy. This paper uses the unit root test, co-integration test and VAR model to make an empirical analysis on the relationship between China´s current account, capital account and GDP from 1982 to 2009. The results showed that the co-integration relationship between the current account and GDP, GDP does Granger cause current account and current account does Granger cause capital account. The policy implication is that through the capital controls on macroeconomic variables to effectively improve the current account of balance of payments.