Macroeconomic determinants of software services exports and impact on external stabilisation for India: An empirical analysis

The impact of macroeconomic determinants on software services exports (SSE) is estimated by using a panel of 45 countries from 2000-2014. Software services exports (SSE) expressed as a percentage share of total world software services exports is used as dependent variable. Macroeconomic variables along with demographic variables are estimated using the TSLS fixed effects technique. Using the estimated coefficients from the cross-country panel model, India specific results are drawn to explain the impact of macroeconomic and demographic variables on India’s SSE and their contribution towards achieving the objective of external stabilisation. The empirical results suggest that GDP, R&D expenditure and reduction in trade barriers of the exporting country improved SSE, whereas internet penetration may have led to the diversion of software services towards the domestic market, thereby reducing exports. Among demographic variables, the share of population within 30-39 improved the SSE. Together, R&D expenditure, reduction in trade barriers and population share (30-39) reduce the CAD/GDP ratio for India by 1.6 percentage points through their contribution towards SSE.