Impact of Soft Power on Current Account Balance in South Asia

Abstract

This study empirically investigates the impact of soft power on current account balance in a panel of seven South Asian countries over the period from 2000 to 2018. The study incorporated population growth, dependency ratio, government effectiveness index, political stability index, net foreign assets, domestic credit, trade openness and real GDP growth as soft power measures in single penal model. The study used Least Square Dummy Variable (LSDV) fixed effect model, random effect model and pooled OLS with standard model specification tests of Hausman and Breusch & Pagan Lagrangian Multiplier. The results of the study addressed that soft power measures are significantly affecting current account balance in South Asia. The results of the study are consistent with existing evidence on the subject the signs of the parameters are according to expectations. The study holds significant contribution in the literature as it fulfills the gap in existing literature by first time identifying soft power determinants of current account balance in South Asia. The study with reference to previous evidence suggested that there is need of considering soft power factors such as population growth, dependency ratio, government effectiveness, domestic credit to private sector and net reign assets in targeted policy reforms to control imbalance in current account of South Asian countries.