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- Title
A COMPARATIVE ANALYSIS OF THE EFFECTIVENESS OF PRECAUTIONARY AND MERCANTILIST APPROACHES TO ACCUMULATION OF FOREIGN EXCHANGE RESERVES IN PAKISTAN.
- Authors
Karim, Asad; Gul, Sajid; Zeb, Ali; Ullah, Obaid
- Abstract
Objective: This study explores and compares short-run and long-run analyses of the validity of precautionary and mercantilist approaches to accumulation of foreign exchange reserves (FER) in Pakistan. Research Design & Methods: This study uses quarterly data from 1990 (1st) to 2015 (4th). The autoregressive distributed lags (ARDL) test is used to check short-run and long--run analyses of the mercantilist and precautionary approaches for the accumulation of foreign exchange reserves in Pakistan. Findings: The empirical results of the study reveal that Pakistan accumulates FER for a precautionary motive. The variables associated with precautionary motives are economically and statistically important in explaining FER accumulation. In contrast, variables linked to mercantilist motives are statistically significant, while insignificant economically for FER accumulation. Implications / Recommendations: In an underdeveloped economy like Pakistan's, a large volume of international reserves helps not only in handling exchange rate strategies, but also in pursuing macroeconomic policies such as: export promotion, development projects, repayment of foreign debt, maintaining employment opportunities, and improvement of the financial sector. Contribution: The econometric estimates show that Pakistan accumulates FER for a precautionary motive. The variables associated with precautionary motives are economically and statistically important in explaining FER accumulation. In contrast, variables linked to mercantilist motives are statistically significant, while insignificant economically for FER accumulation. These results are also true for most of the research studies, including on China, that we see in the literature.
- Subjects
PAKISTAN; PRECAUTIONARY principle; FOREIGN exchange rates; EXTERNAL debts; COMPARATIVE studies; FOREIGN trade promotion; JOB vacancies
- Publication
Argumenta Oeconomica Cracoviensia, 2021, Issue 24/25, p31
- ISSN
1642-168X
- Publication type
Article
- DOI
10.15678/AOC.2021.2402