Impact of trade openness, human capital, and institutional performance on economic growth: Evidence from Organization of Islamic Cooperation countries

Abstract

The study analyzes the impact of trade openness, human capital, and institutional performance on economic growth in OIC countries. The traditional methodologies of panel data ignore the issues of cross‐sectional dependence (CD) and heterogeneity and give spurious results. A novel econometric technique “dynamic common correlated effects (DCCE)” is used to tackle these issues. The long‐run estimates indicate that trade openness, human capital, and public expenditure have a positive and significant association with economic growth for higher‐income and overall OIC countries. However, trade openness has a negative, and human capital has an insignificant correlation with economic growth in lower‐income OIC countries. Institutional performance is positively correlated with economic growth in all groups of OIC countries. The study tends to support the call for the continuation of trade openness and human capital formation policies for overall and higher‐income OIC countries to get benefits in the form of economic growth.