Impact of Trade Openness and Human Capital on Economic Growth: A Comparative Investigation of Asian Countries

Rabail Amna Intisar,Muhammad Rizwan Yaseen,Muhammad Usman,Muhammad Sohail Amjad Makhdum,Rakhshanda Kousar

doi:10.3390/su12072930

Rabail Amna Intisar, Muhammad Rizwan Yaseen + Show 3 more

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https://doi.org/10.3390/su12072930

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Abstract

The aim of this study is to analyze the impact of trade openness and human capital on economic growth in 19 Asian countries from 1985 to 2017. We selected two geographically distributed regions (Western and Southern Asia) based on difference in their GDP per capita. We applied the unit root tests to examine the level of stationarity and found that all variables were integrated at first difference. Kao and Fisher cointegration tests were employed and the results revealed the presence of a long-run relationship. We applied fully modified ordinary least square (FMOLS) and dynamic ordinary least square (DOLS) models to check the magnitude of the long-run coefficients among trade openness, human capital and economic growth. To investigate the direction of causality, we used a Dumitrescu and Hurlin (DH) causality test. The results indicated that trade openness and human capital have a significant and positive relationship while labor force participation has a negative effect on economic growth in Southern Asia, and in the case of Western Asia, the impact is positive. Foreign direct investment (FDI) has a negative and significant impact on GDP per capita (GDPPC) in Western Asia while it is positive and significant in Southern Asia; Total population (TPOP) has a negative impact on GDPPC in both regions. Furthermore, human capital has a positive and significant impact on trade openness in both panels. Meanwhile, labor force participation (LFP) has a positive and significant impact on trade openness in Southern Asia and a negative impact in the case of Western Asia. Trade openness and economic growth have bidirectional causality in Western Asia and unidirectional causality in Southern Asia. It also shows that human capital and economic growth have unidirectional causality in both regions.

Highlights

Trade openness and human capital are the major factors affecting economic growth [1,2]
The main objective of this study was to investigate the impact of trade openness and human capital on economic growth in Asia
The results of this study revealed that trade openness and human capital have a significant and positive relationship with economic growth, while the labor force has a negative impact on the economic growth in Southern Asia and a positive impact on the economic growth in Western Asia

Summary

Introduction

Trade openness and human capital are the major factors affecting economic growth [1,2]. It does include buying and selling of goods and services, but it helps to develop new technologies, flows of new ideas and knowledge. Trade openness promotes growth in several ways It increases capital formulation and expands markets through an increase in investment [4,5]. In the current economic scenario, no country can develop successfully without trade openness, investment, and the migration of people. Trade openness and FDI bring technological transformation in an economy and help to enhance the human capital of that particular economy [11]

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Results

Conclusion