Impact of Trade Openness and Human Capital on Economic Growth: A Time Series Analysis for Pakistan

Abstract

The objective of this study is to investigate the impact of trade openness and human capital on economic growth in Pakistan, utilizing time series data from 1982 to 2025. Initially, the unit root test was conducted, indicating that all variables are I(1). Then Johanson's co-integration method was applied for estimation. The empirical results reveal that human capital is found to be positive and statistically significant at a 1% level. The coefficient on trade openness is also positive and statistically significant at 5% level. The error correction model (ECM) illustrates a negative and significant error correction term, indicating 25% convergence per period. The conclusion drawn from this study is that both trade openness and human capital play a pivotal role in the economic growth of the country. The interaction between trade openness and human capital helps in creating a research-intensive specialization culture and accelerates economic growth in Pakistan.