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Author
Karim Asad (International Islamic University), Gul Sajid (Zhengzhou University), Zeb Ali (Zhengzhou University), Ullah Obaid (Lanzhou University)
Title
A Comparative Analysis of the Effectiveness of Precautionary and Mercantilist Approaches to Accumulation of Foreign Exchange Reserves in Pakistan
Source
Argumenta Oeconomica Cracoviensia, 2021, no 1-2(24-25), s. 31-47, tab., bibliogr. 16 poz.
Keyword
Rezerwy walutowe, Międzynarodowy system walutowy, Dług zagraniczny
Foreign exchange reserves, International monetary system, External debt
Note
JEL Classification: C12, C13, C22, C82, E58, E62.
summ.
Abstract
Objective: This study explores and compares short-run and long-run analyses of the validity of precautionary and mercantilist approaches to accumulation of foreign exchange reserves (FER) in Pakistan.
Research Design & Methods: This study uses quarterly data from 1990 (1st) to 2015 (4th). The autoregressive distributed lags (ARDL) test is used to check short-run and long-run analyses of the mercantilist and precautionary approaches for the accumulation of foreign exchange reserves in Pakistan.
Findings: The empirical results of the study reveal that Pakistan accumulates FER for a precautionary motive. The variables associated with precautionary motives are economically and statistically important in explaining FER accumulation. In contrast, variables linked to mercantilist motives are statistically significant, while insignificant economically for FER accumulation.
Implications / Recommendations: In an underdeveloped economy like Pakistan's, a large volume of international reserves helps not only in handling exchange rate strategies, but also in pursuing macroeconomic policies such as: export promotion, development projects, repayment of foreign debt, maintaining employment opportunities, and improvement of the financial sector.
Contribution: The econometric estimates show that Pakistan accumulates FER for a precautionary motive. The variables associated with precautionary motives are economically and statistically important in explaining FER accumulation. In contrast, variables linked to mercantilist motives are statistically significant, while insignificant economically for FER accumulation. These results are also true for most of the research studies, including on China, that we see in the literature. (original abstract)
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Bibliography
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ISSN
1642-168X
Language
eng
URI / DOI
http://dx.doi.org/10.15678/AOC.2021.2402
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