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February 15, 2016
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Study reveals the economic value of “soft power” in international commerce
UNIVERSITY OF CALIFORNIA, BERKELEY'S HAAS SCHOOL OF BUSINESS—Pop culture assets like Star Wars, Taylor Swift, and the NBA not only contribute to ramping up American appeal, they also increase demand for American goods aboard.
Economists call this “soft power,” the ability to attract and positively influence others. Even though countries tend to wield “hard power” by flexing their economic or military strength, a new study found that countries admired for their soft power tend to sell more exports in the global marketplace.
“Countries are always concerned about their image, but the soft power effect has a very tangible commercial payoff. Germany is a much-admired country and an export powerhouse; North Korea and Iran are pariah states and both find it difficult to export goods,” says Andrew Rose, the study’s author and a professor at UC Berkeley’s Haas School of Business. Rose holds the Bernard T. Rocca, Jr. Chair in International Business & Trade.
In his working paper, “Like me, buy me: The effect of soft power on exports,” Rose studied the period between 2006 and 2013 and found that a 1% net increase in soft power raises exports by about 0.8%. Rose says this responsiveness means that the monetary return to soft power can be immense.
The study tracks trade data for over 200 countries using the International Monetary Fund’s Direction of Trade Statistics (DOTS). The data set includes flows between pairs of countries for both exports and imports. Rose also factored in regional trade agreements from the World Trade Organization.
While soft power can be a driving force in international trade, so are other ubiquitous influences such as population, GDP, and political elections. In order to control for them, Rose incorporated these so-called “fixed effects” in his econometric model.
“Any influence, whether it is economic, social, political or cultural, that affects a country’s ability to export in a given year is swept away by these fixed effects, as are all effects on a country’s desire to import,” Rose explains.
But how do economists measure soft power?
In 2006, a BBC World Service/GlobeScan poll asked people in 33 countries what they thought about different countries—China, Britain, Russia, the United States, India, Japan, and Iran, France, and other countries in Europe—and whether these countries had a “mainly positive or mainly negative” influence in the world. The survey continues to be conducted annually. Today, the survey covers 17 countries and engages participants from 46 countries. The result: a quantitative measure of soft power.
Among nations, the United States is typically viewed as possessing the most soft power, though perceptions vary greatly from country to country. In 2013, only 17% of Russians considered American influence mainly positive, compared to 82% of Ghanaians.
The analysis also found that soft power changes vary over time. For example, Mexican positive perception of the U.S. rose from 10% in 2006 to 41% in 2013. Over the same period, French positive perception increased from 25% to 52%, while Brazilians’ increased from 33% to 59%.
Similarly, over the same seven years, positive views of China decreased substantially in Spain and Germany while remaining rather constant in Indonesia and Kenya. Negative views toward China increased the most in Russia and Brazil.
U.S. and Chinese trade were but two examples in which exports correlated with their respective degrees of soft power.
Furthermore, the most negatively viewed countries—Iran, North Korea, Pakistan, and Israel—also saw fewer exports than they would if they had more positive influence in the world, according to Rose’s analysis.