The Role of Reserves in Mitigating Sanctions’ Impact on Economic Growth

As global risks mount, national reserves act as a nation’s frontline defense, guarding economic stability. This study investigates the role of national reserves in mitigating the impact of international sanctions on economic growth, analyzing 131 countries from 2000 to 2022. Using econometric methods, including two-step Generalized Method of Moments (GMM) and fixed effects models, we examine how reserves relative to external debt help buffer economies against sanctions. The findings show that economic sanctions significantly hinder growth, with trade sanctions being the most damaging. Reserves act as a key buffer, particularly in the short term, though their effectiveness decreases over time. Countries with stronger reserve adequacy are better equipped to manage the challenges of sanctions. The study highlights the importance of maintaining robust reserves and implementing broader strategies like economic diversification and structural reforms for long-term resilience. These insights are valuable for policymakers navigating sanctions-related economic challenges.