Impact of Economic Growth and Trade Openness on Foreign Exchange Reserves in Indian Economy
Published: 2019
Author(s) Name: Mohammad Kashif, Ujjawal K. Tonk & Sheeba Ruhi |
Author(s) Affiliation: Assistant Prof., Dept. of Mgt. Studies, North India Inst. of Tech., Najibabad, Uttar Pradesh, India,
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Abstract
The present study analyses empirically the effect
of economic growth and trade openness on
international reserves in India. The study employed
time series data with annual frequency from 1996
to 2016. The study developed an econometric
model relating RES to ECON and TRDOP variables
and used logarithmic transformation of the
variables for econometric estimation. The
econometric tools such as Augmented Dickey-Fuller
(ADF) test, Johansen co integration test and vector
error correction model were applied. The co
integration test results suggest that there is an
existence of a stable long-run equilibrium
relationship among the variables. The vector error
correction model (VECM) of international reserves
reveals that lagged independent variables shows
the expected signs i. e. economic growth and
trade openness have significant effect on
international reserves. Findings of the study
suggest that economic growth and trade
opennessis positively related to international
reserves. This implies that the authorities of Indian
economy have to involve more actively in foreign
reserve management practices.
Keywords: Economic growth, Trade openness, International reserves, VECM, Cointegration, India.
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