TRADE LIBERALIZATION, HUMAN CAPITAL AND ECONOMIC GROWTH: EMPIRICAL EVIDENCE FROM SELECTED ASIAN COUNTRIES

Countries around the globe are liberalizing their trade policies for the maximum gains due to comparative advantage. Trade is considered as one of the primary tools to increase the economic growth. There are four main channels in literature through which trade liberalization affects economic growth: capital accumulation, equality of factor prices among countries, knowledge transfers and technology transfers. Last two channels are related to the human capital of the country. The more open economy will have larger benefits from trade openness, if country has absorbing capacity of new technology. The present study has been designed to see the impact of trade liberalization on the human capital and economic growth by using panel data analysis. Selected Asian countries (India, Indonesia, Japan, Malaysia, Pakistan, Singapore, South Korea and Sri Lanka) have been grouped as lower income countries (India, Indonesia, Pakistan and Sri Lanka) and higher income countries (Japan, Malaysia, Singapore and South Korea) for comparative analysis. The results show that both developed and developing countries enjoy the trade led growth for the selected period. The impact of trade openness on human capital has been found positive for both groups but found significant only for the developed countries due to well-trained human capital. The fruits of trade openness in form of increased productivity of human capital have not been achieved in developing countries due to their less trained and less skilled workers. The investment in human capital is the dire need of the time for the developing countries to enjoy more beneficial effects of trade openness.