IMPACT OF CURRENT ACCOUNT GAP ON ECONOMIC GROWTH IN SOUTH ASIAN COUNTRIES

This study has estimated the impact of current account gap (CAGAP) on economic growth in selected South Asian countries for the period of 1990 to 2018. CAGAP is calculated from macroeconomic fundamentals through macroeconomic balance approach. The study used panel autoregressive distributive lags estimation technique by taking into account cross sectional dependence and estimated pooled mean group, mean group and dynamic fixed effect estimators. The results of dynamic panel showed that CAGAP, foreign direct investment and gross fixed capital formation significantly affected real GDP growth of the selected countries in the region. CAGAP is contractionary in the short run due to dominance of demand channel while it has expansionary effect in the long run due to dominant supply channel. The policy interventions must focus on the structural distortions and slow- changing factors to eradicate CAGAP. The selected countries should initiate reforms in the form of diversification of tax and exp