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The Effect Of Openness On Foreign Reserves And Growth In The Emerging Economies

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  • Marcello Spanò

    (Department of Economics - University of Insubria)

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    Abstract

    This study draws attention to some stylised facts suggesting that the rise of reserves in the Emerging countries is still partially unexplained. Emerging countries in the last decade seem to have reduced their exposure to the risk of short term foreign capital outflow, as they have increased GDP growth with little growth in new capital assets and short term foreign debt. Nevertheless, they have kept raising foreign reserves massively. This work constructs a model that is able to explain these stylised facts are the result of the same process of globalisation. As numerical simulations establish, the optimal solution depends crucially on two structural parameters newly introduced in this model, which account for the marginal cost of long term finance and for the competitiveness of the domestic industry.

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    File URL: http://www.utgjiu.ro/revista/ec/pdf/2012-01/1_MARCELLO_SPANO.pdf
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    Bibliographic Info

    Article provided by Constantin Brancusi University, Faculty of Economics in its journal Constatin Brancusi University of Targu Jiu Annals - Economy Series.

    Volume (Year): 1 (2012)
    Issue (Month): (March)
    Pages: 7-23

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    Handle: RePEc:cbu:jrnlec:y:2012:v:1:p:7-23

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    Related research

    Keywords: foreign reserves; short term foreign debt; long term finance; growth; investment;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Brad Sturgill, 2010. "Cross-country Variation in Factor Shares and its Implications for Development Accounting," 2010 Meeting Papers 152, Society for Economic Dynamics.
    2. Ricardo J. Caballero & Stavros Panageas, 2004. "Contingent Reserves Management: An Applied Framework," NBER Working Papers 10786, National Bureau of Economic Research, Inc.
    3. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
    4. Hutchison, Michael M. & Noy, Ilan, 2004. "Sudden Stops and the Mexican Wave: Currency Crises, Capital Flow Reversals and Output Loss in Emerging Markets," Santa Cruz Department of Economics, Working Paper Series qt88m6g98w, Department of Economics, UC Santa Cruz.
    5. Yin-Wong Cheung & Xingwang Qian, 2009. "Hoarding of International Reserves: Mrs Machlup's Wardrobe and the Joneses," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 824-843, 09.
    6. Alfaro, Laura & Kanczuk, Fabio, 2009. "Optimal reserve management and sovereign debt," Journal of International Economics, Elsevier, vol. 77(1), pages 23-36, February.
    7. Pablo García & Claudio Soto, 2004. "Large Hoardings of International Reserves: Are They Worth It?," Working Papers Central Bank of Chile 299, Central Bank of Chile.
    8. Michael Bordo & David Stuckler & Chris Meissner, 2009. "Foreign Currency Debt, Financial Crises and Economic Growth: A Long Run View," Working Papers 921, University of California, Davis, Department of Economics.
    9. Avner Bar-Ilan & Nancy P. Marion, 2009. "A Macroeconomic Perspective on Reserve Accumulation," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 802-823, 09.
    10. Ricardo Caballero & Stavros Panageas, 2005. "A Quantitative Model of Sudden Stops and External Liquidity Management," NBER Working Papers 11293, National Bureau of Economic Research, Inc.
    11. Michael B Devereux & Alan Sutherland, 2009. "A Portfolio Model of Capital Flows to Emerging Markets," Working Papers 082009, Hong Kong Institute for Monetary Research.
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