The impact of foreign trade on foreign exchange reserves in Algeria during the period 1990-2021

Abstract

This aim of this research is to examine the impact of foreign trade on the exchange reserves in Algeria in the short and long term. Moreover, the impact of both exports and imports on foreign exchange reserves, to achieve this main the study has applied an econometric analysis using autoregressive distributed lag model (ARDL), the empirical analysis used an annual data of time series for each of exports and imports as explanatory variables and foreign exchange reserves as an endogenous variable. The empirical study concluded that there is a long-term relationship between foreign exchange reserve and each its explanatory variables exports and imports in Algeria, which is explained by the simultaneous correlation of these variables as they are basic variables linking the components of balance of payments, divided into the international trade account on a hand and the capital account flows on the other hand, the results also show that foreign exchange reserves is affected by short run fluctuations of foreign trade indicators because the effect of exports and imports on foreign exchange reserves is statistically insignificant in the long run, although the short run coefficients are significant, the results indicate that in the short run the impact of exports on foreign exchange reserves is a positive and significant. However, the impact of imports is Negative and significant, these results are consistent with the content of economic theory.