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

Rabail Amna Intisar (), Muhammad Rizwan Yaseen (), Rakhshanda Kousar (), Muhammad Usman () and Muhammad Sohail Amjad Makhdum ()
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Rabail Amna Intisar: Department of Economics, Government College University Faisalabad, Punjab 38000, Pakistan
Muhammad Rizwan Yaseen: Department of Economics, Government College University Faisalabad, Punjab 38000, Pakistan
Rakhshanda Kousar: Institute of Agricultural and Resource Economics, University of Agriculture Faisalabad, Punjab 38000, Pakistan
Muhammad Usman: Department of Economics, Government College University Faisalabad, Punjab 38000, Pakistan
Muhammad Sohail Amjad Makhdum: Department of Economics, Government College University Faisalabad, Punjab 38000, Pakistan

Sustainability, 2020, vol. 12, issue 7, 1-19

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.

Keywords: trade openness; FDI; human capital; education; labor force; economic growth and fully modified OLS (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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