The Nonlinear Impact of Institutional Quality on International Reserves: International Evidence

Chee-Hong Law (), Siew-Voon Soon and K. U. Ehigiamusoe
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Chee-Hong Law: School of Social Sciences, Universiti Sains Malaysia, Gelugor 11800 Penang, Malaysia
Siew-Voon Soon: ��Department of Economics and Applied Statistics, Faculty of Business and Economics, Universiti Malaya 50603 Kuala Lumpur, Wilayah Persekutuan, Malaysia
K. U. Ehigiamusoe: ��School of Accounting and Finance, Faculty of Business and Law, Taylor’s University, 47500 Subang Jaya, Selangor, Malaysia

Journal of International Commerce, Economics and Policy (JICEP), 2021, vol. 12, issue 03, 1-21

Abstract: This paper investigates the nonlinear effect of institutional quality on the holding of international reserves by applying the two-step system generalized method of moments on data consisting of 67 countries from 1996 to 2016. The hypothesis is that the association between institutional quality and international reserves has an inverted U pattern. The coefficient sign of the institutional quality and its square term supports the hypothesis. Besides, the marginal effects suggest that the higher the institutional quality index, the lower the demand for reserves. The outputs indicate the importance of good institutional quality in reducing the overdependence on international reserves.

Keywords: International reserves; institutional quality; system GMM; marginal effect; nonlinearity (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S1793993321500149

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