Exley BD Silumbu’s scientific contributions

What explains the unprecedented high levels of foreign reserves accumulated in the Southern African Development Community (SADC)? This study seeks to econometrically establish the key determinants of such high levels of reserves. To do so, the study adopts two panel estimation techniques: the Blundell-Bond System Generalized Method of Moments (GMM) and the Bias-Corrected Least Squares Dummy Variable (LSDVC). The regression results show evidence of precautionary (mainly reserves volatility) but not mercantilist motives in the SADC region. Inertial and opportunity cost elasticities of reserves demand are observed to be inelastic in both econometric models at about 0.85 and-0.70 respectively. The GMM identifies membership to the Common Monetary Area (CMA) as a significant factor, as member countries of these sub-groupings demand more reserves to meet subsequent reserve targets. In addition, while GMM results reveal a U-shaped relationship between reserves hoarding and national income, the LSDVC finds income to have no influence on demand, an observation attributed to strength of instruments within the GMM. From the regression results, the study finds that empirical works on demand for reserves need to clearly distinguish between the alternative measures of reserves-either including or excluding gold; a measurement difference that has typically been ignored in the literature. Various policy implications are drawn from the results.