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Economic Policy Uncertainty and Foreign Reserves: Empirical Evidence from BRIC Countries

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  • Ashfaque Ali Gilal
  • Noor Asmat Ismail

Abstract

Purpose: Over the past three decades, official foreign‐reserve stocks have surged from under US $1 trillion in the early 1990s to more than US $12 trillion by 2022—largely held by emerging‐market and developing economies. This study investigates how economic‐policy uncertainty (EPU) and key macroeconomic variables influence reserve accumulation in the BRIC countries (Brazil, Russia, India, and China) over 2003–2023. Design/Methodology/Approach: Employing panel unit‐root tests to confirm mixed integration orders, we apply Pedroni, Kao, and Westerlund cointegration tests to establish long‐run relationships, and then estimate both pooledmean‐group (PMG) ARDL and fixed‐effects models (selected via LM and Hausman tests). Findings: Our results consistently show that higher EPU, faster GDP growth, and greater trade openness exert significant negative effects on reserves, whereas foreign direct investment inflows and currency depreciation boost reserve levels. Post‐estimation diagnostics—including tests for normality, serial correlation, cross‐sectional dependence, and heteroskedasticity—validate the reliability of our specification. Practical Implications: We recommend that BRIC policymakers work to reduce policy uncertainty, promote stable FDI inflows, maintain exchange‐rate stability, and manage trade openness to safeguard their foreign‐reserve buffers. Originality value:

Suggested Citation

  • Ashfaque Ali Gilal & Noor Asmat Ismail, 2025. "Economic Policy Uncertainty and Foreign Reserves: Empirical Evidence from BRIC Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 3-23.
    • Handle: RePEc:ers:ijebaa:v:xiii:y:2025:i:2:p:3-23
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    References listed on IDEAS

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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