The Long-Run Effect of International Reserves on Economic Growth in Developing Economies

Year 2022, , 822 - 836, 01.12.2022

Muhammed Benli , Aykut Ekinci , Bilal Orhan

https://doi.org/10.17153/oguiibf.1145526

Cited By: 1

Abstract

This paper attempts to empirically investigate the effect of international reserves growth on economic growth in the long-run in 41 developing countries over the period 1970-2019. For this purpose, we employ the CS-ARDL and CS-DL estimators to take into account heterogeneity and cross-sectional dependence that may present in our panels, as well as the DFE and MG estimators which are the traditional panel data estimators. The empirical evidence confirms the deteriorating impact of inflation and the significant positive effect of international reserves on the long-run economic growth in the selected sample of countries.

Keywords

International Reserves, Panel Data Models, Cross-Sectional Dependency

Uluslararası Rezervlerin Gelişme Yolundaki Ekonomilerde Ekonomik Büyüme Üzerindeki Uzun Dönem Etkisi

Abstract

Bu çalışma, 1970-2019 döneminde 41 gelişmekte olan ülkede uzun dönemde uluslararası rezervlerdeki büyümenin ekonomik büyüme üzerindeki etkisini ampirik olarak incelemeye çalışmaktadır. Bu amaçla, panellerdeki olası heterojenliği ve yatay kesit bağımlılığını hesaba katmak için CS-ARDL ve CS-DL tahmin edicileri ile geleneksel panel veri tahmincileri olan DFE ve MG tahmincileri kullanılmıştır. Ampirik bulgular, seçilen ülke örnekleminde, enflasyonun iktisadi büyüme üzerindeki negatif etkisini ve uluslararası rezervlerin uzun dönem ekonomik büyüme üzerindeki pozitif etkisini doğrulamaktadır.

Keywords

Uluslararası Rezervler, Panel Veri Modelleri, Yatay Kesit Bağımlılığı

References

• Lee, M. J,; Aizenman, M. J. (2005), “International Reserves: Precautionary vs. Mercantilist Views, Theory and Evidence”, International Monetary Fund.
• Akinboyo, L. O,; Omotosho, B. S,; Oladunni, S,; Owolabi, O. H. (2016), “External Reserves and Economic Growth in Nigeria: An Empirical Investigation”, West African Financial and Economic Review, Vol. 14 No. 1: 53-78.
• Aizenman, J,; Sun, Y. (2012), “The Financial Crisis and Sizable International Reserves Depletion: From ‘Fear of Floating’to the ‘Fear of Losing International Reserves’?”, International Review of Economics & Finance, Vol. 24: 250-269.
• Awoderu, B. K,; Ochalibe, A. I,; Obekpa, H. O. (2017), “Policy Implications of Long-run Relationship Between External Reserve and Economic Growth in Nigeria”, International Journal of Academic Research and Reflection, Vol. 5 No. 1: 82-95.
• Ben-Bassat, A,; Gottlieb, D. (1992), “Optimal International Reserves and Sovereign Risk”, Journal of International Economics, Vol. 33 No. 3-4: 345-362.
• Benigno, G,; Fornaro, L. (2012), “Reserve Accumulation, Growth and Financial Crises”, Growth and Financial Crises (November 2012).
• Bentum-Ennin, I. (2014), “International Reserves Accumulation and Economic Growth in the West African Monetary Zone”, International Research Journal of Marketing and Economics, Vol. 1 No. 9: 31-56.
• Bird, G,; Rajan, R. (2003), “Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises”, World Economy, Vol. 26 No. 6: 873-891.
• Blanchard, O. J,; Faruqee, H,; Das, M,; Forbes, K. J,; Tesar, L. L. (2010), “The Initial Impact of the Crisis on Emerging Market Countries [with comments and discussion”, BrookingsPpapers on Economic Activity, 263-323.
• Bussière, M,; Cheng, G,; Chinn, M. D,; Lisack, N. (2015), “For a Few Dollars More: Reserves and Growth in Times of Crises”, Journal of International Money and Finance, Vol. 52: 127-145.
• Chudik, A,; Pesaran, M. H. (2015), “Common Correlated Effects Estimation of Heterogeneous Dynamic Panel Data Models With Weakly Exogenous Regressors”, Journal of Econometrics, Vol. 188 No. 2: 393-420.
• Chudik, A,; Mohaddes, K,; Pesaran, M. H,; Raissi, M. (2013), “Debt, Inflation and Growth-Robust Estimation of Long-Run Effects in Dynamic Panel Data Models”, Available at SSRN 2371243.
• Chudik, A,; Mohaddes, K,; Pesaran, M. H,; Raissi, M. (2016), “Long-Run Effects in Large Heterogeneous Panel Data Models with Cross-Sectionally Correlated Errors”, In Essays in Honor of Aman Ullah. Emerald Group Publishing Limited.
• Cruz, M,; Kriesler, P. (2010), “International Reserves, Effective Demand and Growth” Review of Political Economy, Vol. 22 No. 4: 569-587.
• de Beaufort Wijnholds, J,; Sondergaard, L. Q. (2007), “Reserve Accumulation: Objective or by-product?”, ECB Occasional Paper, (73).
• Dominguez, K. M,; Hashimoto, Y,; Ito, T. (2012), “International Reserves and the Global Financial Crisis”, Journal of International Economics, Vol. 88 No. 2: 388-406.
• Dooley, M. P,; Folkerts-Landau, D,; Garber, P. M. (2003), “An Essay on the Revived Bretton Woods system”. NBER, Working Paper No: 9971.
• Elhiraika, A,; Ndikumana, L. (2007), “Reserves Accumulation in African Countries: Sources, Motivations, and Effects” (No. 2007-12). Working Paper.
• Fukuda, S. I,; Kon, Y. (2012), “Macroeconomic Impacts of Foreign Exchange Reserve Accumulation: Theory and International Evidence”, In Monetary and Currency Policy Management in Asia. Edward Elgar Publishing.
• Grubel, H. G. (1984), “The International Monetary System: Efficiency and Practical Alternatives”, Penguin Group USA. IMF (2001), “Guidelines for Foreign Exchange Reserves Management”. IMF, September.
• Karfakis, C. (1997), “The Demand for International Liquidity: A Cointegration Approach”, Applied Financial Economics, Vol. 7 No. 6: 673-678.
• Kashif, M,; Sridharan, P. (2015), “International Reserves Accumulation and Economic Growth: Evidence from India”, International Journal of Engineering and Management Research, Vol. 5 No. 2.
• Kashif, M. (2016), “Linear and Nonlinear Relationship Between International Reserves and Economic Growth: Evidence from Algeria”, International Journal of Marketing and Financial Management, Vol. 4 No. 9: 44-52.
• Kashif, M,; Sridharan, P,; Thiyagarajan, S. (2017), “Impact of Economic Growth on International Reserve Holdings in Brazil”, Brazilian Journal of Political Economy, Vol. 37: 605-614.
• Kashif, M,; Singh, S. K,; Thiyagarajan, S,; Maheshwari, A. (2020), “Linear and Nonlinear Causal Relationships Between International Reserves and Economic Growth: Evidence from India”, Asia-Pacific Journal of Management Research and Innovation, Vol. 16 No. 1: 54-59.
• Kaphle, R. R. (2021), “Impact of Foreign Exchange Reserve on Economic Growth in Nepal”, Journal of Management and Development Studies, Vol. 30 No. 1: 14-23.
• Krušković, B. D,; Maričić, T. (2015), “Empirical Analysis of the Impact of Foreign Exchange Reserves to Economic Growth in Emerging Economics”, Applied Economics and Finance, Vol. 2 No. 1: 102-109.
• Laser, F. H,; Weidner, J. (2020), “Currency Compositions of International Reserves and the Euro Crisis” Darmstadt Discussion Papers in Economics. No: 238
• Lehto, T. (1994), “The Level of a Central Bank's International Reserves: Theory and Cross-Country Analysis” (No. 15/1994). Bank of Finland Discussion Papers.
• Lin, M. Y. (2011), “Foreign Reserves and Economic Growth: Granger Causality Analysis with Panel Data”, Economics Bulletin, Vol. 31 No. 2: 1563-1575.
• Llaudes, R,; Salman, F,; Chivakul, M. (2010), “The Impact of the Great Recession on Emerging Markets”, Available at SSRN 1750726.
• Maddala, G. S,; Trost, R. P,; Li, H,; Joutz, F. (1997), “Estimation of Short-Run and Long-Run Elasticities of Energy Demand from Panel Data Using Shrinkage Estimators”, Journal of Business & Economic Statistics, Vol. 15 No. 1: 90-100.
• Hviding, K,; Nowak, M,; Ricci, L. A. (2004), “Can Higher Reserves Help Reduce Exchange Rate Volatility? An Empirical Investigation”, Luiss Lab of European Economics, 13.
• Nwafor, M. C. (2018), “External Reserves: Panacea for Economic Growth in Nigeria”, International Journal of Business and Management, Vol: 9 No. 33.
• Nwosa, P. I. (2017), “External Reserve on Economic Growth in Nigeria”, Journal of Entrepreneurship, Business and Economics, Vol. 5 No. 2: 110-126.
• Ojiako, I. A. (2020), “Linkages Between External Reserves and Economic Performance in Nigeria, 1981-2018: Bounds Test and ARDL Approaches”, South Asian Journal of Social Studies and Economics, Vol. 6 No. 1: 44-62.
• Pesaran, M. H,; Smith, R. (1995), “Estimating Long-Run Relationships from Dynamic Heterogeneous Panels”, Journal of Econometrics, Vol. 68 No. 1: 79-113.
• Pesaran, M. H,; Shin, Y,; Smith, R. P. (1999), “Pooled Mean Group Estimation of Dynamic Heterogeneous Panels”, Journal of the American Statistical Association, Vol. 94 No. 446: 621-634.
• Pesaran, M. H. (2004), “General Diagnostic Tests for Cross Section Dependence in Panels”, Institute for the Study of Labor (IZA). (IZA Discussion Paper No. 1240).
• Pesaran, M. H. (2015), “Testing Weak Cross-Sectional Dependence in Large Panels”, Econometric Reviews, Vol. 34 No. 6-10: 1089-1117.
• Polterovich, V,; Popov, V. (2003), “Accumulation of Foreign Exchange Reserves and Long Term Growth”, NES Working Paper.
• Rodrik, D. (2006). “The Social Cost of Foreign Exchange Reserves”. International Economic Journal, Vol. 20 No. 3: 253-266.
• Romero, A. M. (2005), “Comparative Study: Factors that Affect Foreign Currency Reserves in China and India”, Honors Research. Economics Department Spring.
• Sula, O,; Oguzoglu, U. (2021), “International Reserves and Economic Growth”, International Review of Economics & Finance, Vol. 72: 16-28.
• Toda, H. Y,; Yamamoto, T. (1995), “Statistical Inference in Vector Autoregressions with Possibly Integrated Processes”, Journal of Econometrics, Vol: 66 No. 1-2: 225-250.