Macroeconomic drivers of foreign exchange reserves: evidence from South Asian economies

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Authors: Mohammad Ridwan, Md Robin Ahammed, Zulfiquar Ali Antor, Jeremy Ko, Chun Kai Leung, Afsana Akther, Wai-kit Ming
Cited by: 3
References: 59

Abstract

This study examines the macroeconomic determinants of foreign currency reserves in South Asia, focusing on Bangladesh, India, Pakistan, and Sri Lanka from 2004 to 2023. Using a dynamic panel econometric framework, the analysis accounts for cross-sectional dependence, slope heterogeneity, and mixed order of integration to ensure robust inference. The Pooled Mean Group Autoregressive Distributed Lag (PMG‑ARDL) model reveals that remittances and foreign direct investment (FDI) have significant long‑term positive effects on reserves, while GDP growth, real interest rates, and inflation exert negative influences. Exchange rates and reserves share a stable long‑run equilibrium, although short‑term volatility disrupts this relationship. Dumitrescu‑Hurlin causality tests confirm bidirectional causality between reserves and remittances, and a unidirectional link from FDI to reserves. Robustness checks (GLS, DKSE, PCSE) validate these findings. Overall, reserves serve both as buffers against external shocks and as catalysts for economic stability and growth.

Fields of Study & Subjects

Global Financial Crisis and Policies International Business and FDI Natural Resources and Economic Development

Publication details

Journal / source
Cogent Economics & Finance
Publisher
Informa UK Limited
Volume
14
Issue
1
Publication date
15 June 2026
Language
EN