A Study on Causal Relationship between Trade, Human Capital and Economic Growth Using Panel-VAR

Abstract

The purpose of this study is to analyze the causal relationship between trade, human capital accumulation and economic growth and to provide implications for Korean manufacturing industry. The results of panel Granger causality analysis using panel VAR model are as follows. The export, human capital, ‘export and human capital interaction term’ have a causal relationship to economic growth. Economic growth, human capital is the cause of exports. However, Economic growth has no causal on human capital, and exports have causality to human capital but have low statistical significance. Import has Grnager causal relationship with economic growth. Economic growth also has a causal relationship with imports. Therefore, there is a bi-directional causal relationship between import and economic growth. Imports have a causal relationship with human capital and have a higher significance level than those of exports. And the interaction terms of exports and imports with human capital have causal relations with economic growth. This implies that trade can affect human capital and ultimately economic growth through income distribution. But economic growth does not cause human capital accumulation. These results show that human capital is a major causal factor for export, import, and economic growth, and policy efforts are needed to foster human capital for economic growth.