International reserves and economic growth

Abstract

Abstract The channels through which reserves affect economic performance have been studied extensively; however, an empirical evaluation of the actual performance of reserve holders is missing from the literature. This paper s goal is to fill this gap. We investigate the relationship between the level of international reserves and economic growth for a sample of 120 developed and developing nations for the period 1981–2010. Using dynamic panel data techniques and controlling for a wide range of covariates, we find that international reserves have a positive effect on growth. Furthermore, the effect weakens as the opportunity cost of holding reserves increases.