Abstract

There is a rapidly growing literature on the interaction between trade liberalization and economic growth but few have analyzed the relationship between trade liberalization, human capital and economic growth. This paper attempts to investigate empirically the causality relationship between trade liberalization, human capital and economic growth in Pakistan by employing co-integration and granger causality techniques of time series econometrics for the period of 1972-2007. The data on trade liberalization and economic growth are taken from the world development indicators, ESDS international website while human capital index is constructed based on the data from Pakistan economic survey. The empirical results reveal that there exist short run and long run co-integration and causality relationships among variables in the growth model. It implies that education and trade openness policies may be feasible with sustained economic growth. It is also found that causality runs from trade liberalization and human capital to economic growth. The results are also consistent with the growth theories and economic literature.

Key words: Trade openness, education, economic growth, co-integration, causality, Pakistan.