Financial liberalization and international capital mobility of Taiwan: A regime-switching approach

In this paper, the relationship between investment and saving rates is embedded in a Markov regime-switching framework where parameters are subject to switching between two different cointegration regimes. The fact that Taiwan has been experiencing a series of financial liberalization policies since 1979 justified the use of a two-state first-order regime-switching model to estimate the model. Evidence from transition probabilities shows that since the late 1970s, the regime of high degree of capital mobility has probabilistically dominated the regime of low degree of capital mobility, which implies that Taiwan's domestic capital market has been more mobile internationally.