The Nexus Between Trade Openness and GDP Growth: Analyzing the Role of Human Capital Accumulation

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.

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