Abstract
The channels through which reserves affect economic performance have been studied extensively; however, an empirical evaluation of the actual performance of reserve holders is missing from the literature. This paper’s goal is to fill this gap. We investigate the relationship between the level of international reserves and economic growth for a sample of 120 developed and developing nations for the period 1981–2010. Using dynamic panel data techniques and controlling for a wide range of covariates, we find that international reserves have a positive effect on growth. Furthermore, the effect weakens as the opportunity cost of holding reserves increases.
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