Abstract
The objective of this study is to explore the empirical impact of trade openness on gross domestic product (GDP) growth. Researchers have not given the externalities of trade openness the deserved scholarly attention. In this work, we propose to account for human capital accumulation (HCA) as an additional dimension of economic trade integration. To address the potential endogeneity issue, we use the system generalized method of moments (GMM) estimator developed for dynamic panel data models. The results outline an intriguing indirect relationship between trade openness and GDP growth. If HCA is taken into account as an intervening variable, trade may have a negative impact on GDP growth when countries exhibit a low level of HCA. Thus, the indirect relationship between trade openness and HCA was studied in depth, and to the best of our knowledge, this research is the first to examine this relationship in both developed and developing countries over a 34-year period (1980–2014). The established GMM-centric thresholds are robust to alternative estimation techniques and measurements of trade openness. Policy implications are discussed.
Highlights
One of the current economic debates is the relationship between trade openness and economic performance
Compared with the earlier studies such as those from Hye (2012), Soukiazis and Antunes (2012), Haq and Luqman (2014), Ibrahim and Sare (2018), and Darku and Yeboah (2018), we exclusively focus on a large panel of countries to investigate the link between trade openness and gross domestic product (GDP) growth when human capital accumulation (HCA) is taken on board as a moderating proxy
The main objective of this study is to explore how the relationship between trade openness and GDP growth depends on the HCA of a specific country
Summary
One of the current economic debates is the relationship between trade openness and economic performance. Researchers usually measure the degree to which countries are open to international trade with their imports and exports. Their economic performance is generally measured by gross domestic product (GDP) or productivity in different forms. A landmark study from Frankel and Romer (1999), found a positive, significant, and weak relationship between the two underlying variables. Subsequent studies have not shown a clear-cut impact of trade openness on GDP growth due to potential concerns of endogeneity and estimation misspecifications
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