International Reserves Accumulation and Economic Growth: Evidence from India
International Journal of Engineering and Management Research, Volume 5, Issue 2, 2015
7 Pages Posted: 22 Jan 2016
Date Written: April 1, 2015
Abstract
The present study analyses empirically the impact of economic growth on international reserves in India. We employed time series data with annual frequency from 1993 to 2013. We develop an econometric model relating RES to ECON variables and used logarithmic transformation of the variables for econometric estimation. The econometric tools such as Augmented Dickey-Fuller (ADF) test, Johansen cointegration test and vector error correction model were applied. The cointegration test results suggest that there is an existence of a stable long-run equilibrium relationship between international reserves and economic growth. The VECM of international reserves reveals that lagged independent variables shows the expected signs i. e. economic growth have significant effect on international reserves. Findings of the study suggest that economic growth is positively related to international reserves. This implies that India has to involve more actively in foreign reserve management practices.
Keywords: Economic growth, International reserves, VECM, Cointegration, India
JEL Classification: F31, F42
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