Abstract
Trade has significant influence on total factor productivity (TFP) growth. There is lack of research at level in Pakistan This paper investigates to what extent trade liberalization affects productivity growth employing endogenous growth model. Using DEA-Malmquist index to panel data in the first step we examine TFP growth, and decompose it into technological change and efficiency change. We found technological change is the key source of improvement in productivity growth. In the second step, we employ generalized method of moments (GMM) to assess the effect of trade liberalization on productivity growth and its components. We found trade liberalization, and other variables have substantial effect on productivity growth through the channels of learning by doing, knowledge spillovers, technology diffusion, and transformation. The results also support the hypothesis that human capital plays a crucial role in the creation, promotion, and absorption of technology. The study emphasis on the need to invest in human capital with the latest and scientific education to nurture human skills.
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