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

Ashfaque Ali Gilal and Noor Asmat Ismail

International Journal of Economics & Business Administration (IJEBA), 2025, vol. XIII, issue 2, 3-23

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:

Keywords: Economic policy; uncertainity; foreign reserves; cointegration tests; BRIC countries. (search for similar items in EconPapers)
JEL-codes: C33 E32 E62 F31 F41 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijebaa:v:xiii:y:2025:i:2:p:3-23

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