Determinants of International Reserves Among Organisation of Petroleum Exporting Countries (OPEC)

Authors

DOI:

https://doi.org/10.18778/1508-2008.25.24

Keywords:

international reserves, Organisation of Petroleum Exporting Countries, crude oil prices, exchange rates, international trade

Abstract

Member countries of the Organisation of Petroleum Exporting Countries (OPEC) are always in the news regarding the prices and supply of crude oil to the international market. One of the economic reasons for this is liquidity and the desire to accumulate international reserves by the respective countries. This paper examined the determinants of international reserves among the cartel against the backdrop of the motives for keeping reserves. With data from 2005 to 2018, the adopted variables that were tested with the system of generalised methods of moments (Sy‑GMM) are inflation, exchange rates, oil prices, crude oil dependence, economic crises and others. The results and outputs show that inflation was negatively impactful externally and internally, while FDI inflows recorded negative significance. Economic crises and economic openness were positively significant, while oil prices and exchange rates were not significant determinants of international reserves accumulation. The paper recommends the maximisation of opportunities available by members during economic crises to accumulate reserves that will enable them to diversify from dependence on crude oil exports to include other products and a higher level of openness to open the economy up for competition to make the economies stronger.

Downloads

Download data is not yet available.

References

Adetiloye, K.A. (2015), Business Investment and the Nigerian Investible Capital Hemorrhage in Financial Crises, [in:] C. Das (ed.), Handbook of Research on Globalization, Investment, and Growth‑Implications of Confidence and Governance, IGI Global, Hershey, pp. 416–436, https://doi.org/10.4018/978-1-4666-8274-0.ch020
Google Scholar DOI: https://doi.org/10.4018/978-1-4666-8274-0.ch020

Aizenman, J. (2008), International Reserve Management and the Current Account, [in:] K. Cowan, S. Edwards, R.O. Valdés (eds.), Current Account and External Financing, Central Bank of Chile, Santiago, pp. 435–474.
Google Scholar

Aizenman, J., Ito, H. (2012), Trilemma policy convergence patterns and output volatility, “The North American Journal of Economics and Finance”, 23 (3), pp. 269–285, https://doi.org/10.1016/j.najef.2012.03.002
Google Scholar DOI: https://doi.org/10.1016/j.najef.2012.03.002

Aizenman, J., Riera‑Crichton, D. (2008), Real Exchange Rate and International Reserves in an Era of Growing Financial and Trade Integration, “The Review of Economics and Statistics”, 90 (4), pp. 812–815, https://doi.org/10.1162/rest.90.4.812
Google Scholar DOI: https://doi.org/10.1162/rest.90.4.812

Aizenman, J., Cheung, Y., Qian, X.W. (2019), The currency composition of international reserves, demand for international reserves, and global safe assets, “Journal of International Money and Finance”, 102, 102120, https://doi.org/10.1016/j.jimonfin.2019.102120
Google Scholar DOI: https://doi.org/10.1016/j.jimonfin.2019.102120

Al Rousana, S., Sbia, R., Tas, B.K.O (2018), A dynamic network analysis of the world oil market: Analysis of OPEC and non‑OPEC members, “Energy Economics”, 75, pp. 28–41, https://doi.org/10.1016/j.eneco.2018.07.032
Google Scholar DOI: https://doi.org/10.1016/j.eneco.2018.07.032

Al‑Fattah, S.M. (2020), Non‑OPEC conventional oil: Production decline, supply outlook and key implications, “Journal of Petroleum Science and Engineering”, 189, 107049, https://doi.org/10.1016/j.petrol.2020.107049
Google Scholar DOI: https://doi.org/10.1016/j.petrol.2020.107049

Alberola, E., Erce, A., Serena, J.M. (2015), International reserves and gross capital flows dynamics, “Journal of International Money and Finance”, 60, pp. 151–171, https://doi.org/10.1016/j.jimonfin.2015.09.003
Google Scholar DOI: https://doi.org/10.1016/j.jimonfin.2015.09.003

Alfalih, A.A., Bel Hadj, T. (2020), Foreign direct investment determinants in an oil abundant host country: Short and long run approach for Saudi Arabia, “Resources Policy”, 66, 101616, https://doi.org/10.1016/j.resourpol.2020.101616
Google Scholar DOI: https://doi.org/10.1016/j.resourpol.2020.101616

Arellano, M., Bond, S. (1991), Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, “The Review of Economic Studies”, 58 (2), pp. 277–297, https://doi.org/10.2307/2297968
Google Scholar DOI: https://doi.org/10.2307/2297968

Bankole, A.S., Shuaibu, M.I. (2013), International Reserve and Oil Price Movement: Evidence from Nigeria, “Ibadan Journal of the Social Sciences”, 11 (2), pp. 70–85.
Google Scholar

Bond, S.S., Hoeffler, A., Temple, J. (2001), GMM Estimation of Empirical Growth Models, “Economics Papers”, W21 (1), Economics Group, Nuffield College: University of Oxford.
Google Scholar

Choi, W.G., Sharma, S., Strömqvist, M. (2007), Capital Flows, Financial Integration, and International Reserve Holdings: The Recent Experience of Emerging Markets and Advanced Economies, “IMF Working Paper”, WP/07/151, https://doi.org/10.5089/9781451867152.001
Google Scholar DOI: https://doi.org/10.5089/9781451867152.001

Čech, Z., Jevčák, A. (2011), International reserves in the CEE8 – lessons from the financial crisis, “ECFIN Country Focus”, 8 (2), pp. 1–8.
Google Scholar

Dominguez, K.M.E., Hashimoto, Y., Ito, T. (2012), International reserves and the global financial crisis, “Journal of International Economics”, 88 (2), pp. 388–406, https://doi.org/10.1016/j.jinteco.2012.03.003
Google Scholar DOI: https://doi.org/10.1016/j.jinteco.2012.03.003

Dooley, M.P., Folkerts‑Landau, D., Garber, P. (2004), An Essay on the Revived Bretton Woods System, “NBER Working Paper National”, No. 9971, National Bureau of Economic Research, Cambridge, https://doi.org/10.3386/w9971
Google Scholar DOI: https://doi.org/10.3386/w9971

Energy Information Administration (2021), Annual energy Outlook 2021 with projections to 2050, https://www.eia.gov/outlooks/aeo/pdf/AEO_Narrative_2021.pdf (accessed: 2.06.2022).
Google Scholar

European Central Bank (2006), The Accumulation of Foreign Reserves, “Occasional Paper Series”, No. 43, https://www.ecb.europa.eu/pub/pdf/scpops/ecbocp43.pdf (accessed: 17.03.2021).
Google Scholar

European Central Bank (2012), The external environment of the euro area, “Economic and Monetary Developments. ECB Monthly Bulletin”, June, https://www.ecb.europa.eu/pub/pdf/mobu/mb201310en.pdf (accessed: 21.03.2022).
Google Scholar

Fischer, S. (2001), IMF/World Bank International Reserves: Policy Issues Forum – Opening Remarks by IMF First Deputy Managing Director Stanley Fischer, International Monetary Fund, http://www.imf.org/external/np/speeches/2001/042801.htm (accessed: 3.06.2022).
Google Scholar

Frenkel, J.A., Jovanovic, B. (1981), Optimal International Reserves: A Stochastic Framework, “The Economic Journal”, 91 (362), pp. 507–514, https://doi.org/10.2307/2232599
Google Scholar DOI: https://doi.org/10.2307/2232599

Gil‑Alanaab, L.A., Dadgar, Y., Nazari, R. (2020), An analysis of the OPEC and non‑OPEC position in the World Oil Market: A fractionally integrated approach, “Physica A: Statistical Mechanics and its Applications”, 541 123705, https://doi.org/10.1016/j.physa.2019.123705
Google Scholar DOI: https://doi.org/10.1016/j.physa.2019.123705

Gosh, A.R., Ostry, J.D., Tsangarides, C.T. (2014), Accounting for emerging market countries’ international reserves: Are Pacific Rim countries different?, “Journal of International Money and Finance”, 49 (A), pp. 52–82, https://doi.org/10.1016/j.jimonfin.2014.05.006
Google Scholar DOI: https://doi.org/10.1016/j.jimonfin.2014.05.006

Ibhagui, O.W. (2020), The Economic Performance Effects of Capital Flows in OPEC Member Countries, “The Quarterly Review of Economics and Finance”, 75, pp. 67–83, https://doi.org/10.1016/j.qref.2019.05.015
Google Scholar DOI: https://doi.org/10.1016/j.qref.2019.05.015

International Monetary Fund (2009), International Monetary Fund. Annual Report, http://www.imf.org/external/pubs/ft/ar/2009/eng/pdf/a1.pdf (accessed: 2.06.2022).
Google Scholar DOI: https://doi.org/10.5089/9781451802993.002

International Relations Committee Task Force (2006), The Accumulation of Foreign Reserves, “European Central Bank Occasional Paper”, No. 43, February.
Google Scholar

Irefin, D., Yaaba, B.N. (2011), Determinants of foreign reserves in Nigeria: An autoregressive distributed lag approach, “CBN Journal of Applied Statistics”, 02 (2), The Central Bank of Nigeria, Abuja, pp. 63–82.
Google Scholar

Jeanne, O., Rancière, R. (2006), The Optimal Level of International Reserves for Emerging Market Countries: Formulas and Applications, “IMF Working Paper”, WP/06/229, https://doi.org/10.5089/9781451864892.001
Google Scholar DOI: https://doi.org/10.5089/9781451864892.001

Lane, P.R., Milesi‑Ferretti, G.M. (2007), The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970–2004, “Journal of International Economics”, 73 (2), pp. 223–250, https://doi.org/10.1016/j.jinteco.2007.02.003
Google Scholar DOI: https://doi.org/10.1016/j.jinteco.2007.02.003

Lawrence, H.S. (2006), Reflections on Global Account imbalances and Emerging Markets Reserves Accumulation, Paper presented at J.K. Jha Memorial Lecture, March.
Google Scholar

Lee, S.S., Luk, P. (2018), The Asian Financial Crisis and international reserve accumulation: A robust control approach, “Journal of Economic Dynamics and Control”, 90, pp. 284–309, https://doi.org/10.1016/j.jedc.2018.03.010
Google Scholar DOI: https://doi.org/10.1016/j.jedc.2018.03.010

Moosa, I.A. (1992), The demand for international reserves by OPEC countries: some empirical estimates, “OPEC Review”, 16 (4), pp. 441–453, https://doi.org/10.1111/j.1468-0076.1992.tb00443.x
Google Scholar DOI: https://doi.org/10.1111/j.1468-0076.1992.tb00443.x

Okullo, S.J., Reynes, F. (2016), Imperfect cartelisation in OPEC, “Energy Economics”, 60, pp. 333–344, https://doi.org/10.1016/j.eneco.2016.10.010
Google Scholar DOI: https://doi.org/10.1016/j.eneco.2016.10.010

Olayungbo, D.O. (2019), Effects of Global Oil Price on Exchange Rate, Trade Balance, and Reserves in Nigeria: A Frequency Domain Causality Approach, “Journal of Risk and Financial Management”, 12 (1), p. 43, https://doi.org/10.3390/jrfm12010043
Google Scholar DOI: https://doi.org/10.3390/jrfm12010043

Parnes, D. (2019), Heterogeneous noncompliance with OPEC’s oil production cuts, “Energy Economics”, 78, pp. 289–300, https://doi.org/10.1016/j.eneco.2018.11.023
Google Scholar DOI: https://doi.org/10.1016/j.eneco.2018.11.023

Pineau, G., Dorrucci, E., Comelli, F., Lagerblom, A. (2006), The Accumulation of Foreign Reserves, “European Central Bank Occasional Paper”, No. 43, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=807417 (accessed: 3.06.2022).
Google Scholar DOI: https://doi.org/10.2139/ssrn.807417

Plante, M. (2019), OPEC in the news, “Energy Economics”, 80, pp. 163–172, https://doi.org/10.1016/j.eneco.2018.12.025
Google Scholar DOI: https://doi.org/10.1016/j.eneco.2018.12.025

Razek, N.H.A., Michieka, N.M. (2019), OPEC and non‑OPEC production, global demand, and the financialisation of oil, “Research in International Business and Finance”, 50, pp. 201–225, https://doi.org/10.1016/j.ribaf.2019.05.009
Google Scholar DOI: https://doi.org/10.1016/j.ribaf.2019.05.009

Reddy, Y.V. (2006), Foreign exchange reserves: new realities and options, “BIS Review”, 87, pp. 1–6, https://www.bis.org/review/r060921c.pdf (accessed: 20.05.2021).
Google Scholar

Shin, H.S., Turner, P. (2015), What does the new face of international financial intermediation mean for emerging market economies?, “Financial Stability Review”, 19, pp. 25–36.
Google Scholar

Steiner, A. (2017), Does the accumulation of international reserves spur inflation? A reappraisal, “The North American Journal of Economics and Finance”, 41, pp. 112–132, https://doi.org/10.1016/j.najef.2017.03.007
Google Scholar DOI: https://doi.org/10.1016/j.najef.2017.03.007

Summers, L.H. (2007), Reflections on Global Account Imbalances and Emerging Markets Reserve Accumulation, https://ideas.repec.org/p/ess/wpaper/id1042.html (accessed: 20.05.2021).
Google Scholar

The World Bank (n.d.), World Development Indicators, https://databank.worldbank.org/source/world‑development‑indicators (accessed: 19.06.2020).
Google Scholar

Williamns, M.V. (2005), Foreign exchange reserves – how much is enough, https://www.bis.org/review/r060123c.pdf (accessed: 11.03.2021).
Google Scholar

Downloads

Published

2022-09-14

How to Cite

Bada, O. T. ., Adetiloye, K. A., Olokoyo, F. O., & Ukporhe, G. (2022). Determinants of International Reserves Among Organisation of Petroleum Exporting Countries (OPEC). Comparative Economic Research. Central and Eastern Europe, 25(3), 111–133. https://doi.org/10.18778/1508-2008.25.24

Issue

Section

Articles