Accumulation of Reserves in Emerging and Developing Countries: Mercantilism vs. Insurance

Luis Cabezas and Jose De Gregorio

Working Papers from University of Chile, Department of Economics

Abstract: Motivated by the significant increases in international reserves during the 2000s, this paper analyzes the reasons why emerging and developing countries choose to accumulate them. In addition to a traditional measure of mercantilism, we add the terms of trade, and the speculation-deterrent motive. The results show that the mercantilist motive was a significant factor behind the massive accumulation of reserves before the global financial crisis, and it was almost as important as the precautionary motive. It is shown that commodity-exporting countries increased reserves for a fundamentally mercantilist motive. Finally, the speculationdeterrent motive was also an important factor during the 2000s.

Pages: 30 pages
Date: 2018-07
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