Factors Associated with Growth in India’s International Reserves: VECM Analysis
| Published date | 01 August 2023 |
| DOI | http://doi.org/10.1177/00157325221103642 |
| Author | Latha Sreeram,Samie Ahmed Sayed |
| Date | 01 August 2023 |
| Subject Matter | Articles |
Factors Associated
with Growth in India’s
International Reserves:
VECM Analysis
Latha Sreeram1 and Samie Ahmed Sayed2
Abstract
This study empirically examines the determinants of India’s international reserves
in the long run and in the short run with seven other macroeconomic variables
using the vector error correction model. The Johansen co-integration results
indicate a positive long-run relationship between international reserves holdings
and broad money M3 and foreign direct investment (FDI) inflows and negative
relationship with external debt. The Granger causality test outcome also verifies
the results, demonstrating that increase in broad money supply and FDI inflows
are the reason for the accumulation in international reserves in India in the long
run. M3 demonstrated a higher influence on international reserves suggesting
that monetary policy is used widely in regulating the international reserves in
India. This study also estimated the short-run dynamics and the tendency of the
variables to reinstate to its long-run equilibrium. The error correction term coef-
ficient entails a moderately low level of adjustment of international reserves hold-
ing, indicating that it is the other reason that the level of international reserves
holding in India is high in the short run.
JEL Codes: E51, F31, F41
Keywords
International reserves, broad money, FDI inflows, external debt, vector error
correction model, Granger–Causality
Article
Foreign Trade Review
58(3) 386–400, 2023
© 2022 Indian Institute of
Foreign Trade
Article reuse guidelines:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/00157325221103642
journals.sagepub.com/home/ftr
1
Chetana’s Institute of Management & Research, Mumbai, Maharashtra, India.
2
Institute for Technology & Management, Mumbai, Maharashtra, India.
Corresponding author:
Latha Sreeram, Chetana’s Institute of Management & Research, Mumbai, Maharashtra 400064, India.
E-mail: Latha.sreeram@cimr.in
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