ABSTRACT

Algeria’s international reserves have grown rapidly since 2000, reflecting rising prices for exported oil. International reserves management represents a crucial aspect of macroeconomic policy to help achieve overall economic growth. The study investigates linear and nonlinear causality between international reserves and economic growth. Earlier studies have ignored the nonlinear behaviour which could be caused by structural breaks. In this study both linear and nonlinear causality tests are applied to examine causal relationship between the two for Algeria. It is found that there is bidirectional causality between international reserves and economic growth with respect to the linear causality but a unidirectional causality exists running from economic growth to international reserves with respect to nonlinear causality. On the basis of these results, we suggest that the policy formulators of Algerian government to promote and recover oil and gas sector to achieve the goal of economic growth.

Keywords- Algeria, economic growth, international reserves, Nonlinearity test.