1. E-mail: imranchaudhry@bzu.edu.pk
Exploring the Causality Relationship between Trade Liberalization, Human Capital and Economic Growth: Empirical Evidence from Pakistan
Dr. Imran Chaudhry
Associate Professor of Economics Bahauddin Zakariya University Multan, Pakistan

2. I. Introduction Trade liberalization
Trade Liberalization and Economic growth
Human capital
Human Capital and Economic Growth

3. Theories of Human Capital
[See Schultz (1961) and Becker (1962)]
Theories of endogenous growth
[See Lucas (1988), Romer (1990) and Rebelo (1991)]

4. II. Data Sources Time series data covering the time period 1972-2007
ESDS international website
Pakistan Economic Survey

5. III. Selection of Variables
Real Gross Domestic Product (LRGDP)
(Proxy for Economic Growth)
Trade openness (TRADE)
(Proxy for trade liberalisation)
Employed Labour Force
Proxy for labour (LLABOUR)

6. Gross Fixed Capital Formation as Percent of GDP
Proxy for Capital (LCAPITAL)
Human Capital Index (LHCAPT)
Ht = (5H1t + 10H2t + 16H3t) / Population (t))
Where
Ht = Human capital stock at year t,
Population (t) = Total population at year t,
H1t, H2t and H3t represent the number of enrolments at primary school, higher secondary school, and university levels respectively.

7. IV. Methodological Issues
All variables are taken with natural logs
Neo-classical Growth Model, originally proposed by Solow (1956) and extended by Mankiw, Romer, and Weil (1992)
Cobb Douglas Growth Model

8. Data Analysis Techniques
Descriptive Statistics Analysis
Correlation Matrix
Augmented Dickey-Fuller Test (ADF)

9. Johansen approach for Co-integration
Error Correction Model (ECM)
Granger Causality Analysis

10. LGDP = β1 + β2 LTRADE + β3 LHCAPT + β4 LCAPITAL + β5 LLABOUR + ut
An econometric model of the selected variables used in this study is given as:
LGDP = β1 + β2 LTRADE + β3 LHCAPT + β4 LCAPITAL + β5 LLABOUR + ut

11. V. Results and Discussion a. Descriptive Statistics Analysis
Trade openness, labor, capital and human capital have very low variability
Residuals for all variables are normally distributed except human capital

12. All variables are positively correlated
b. Correlation Matrix
Correlation of variables reveals strength of the relationship of variables
All variables are positively correlated
labour force participation and human capital index are highly correlated with economic growth
Capital and openness are poorly correlated with growth

13. C. Time Series Econometric Results
The regression results are spurious
The problem of non-stationary of the variables
All variables are found stationer at first difference
Co-integration analysis

14. Trace statistic has been used to test the null hypothesis of r co-integrating vectors
Model 2 (Co integration with restricted intercepts and no deterministic trend in the data) was found to be the most appropriate
There exists only two co-integrating relationships

15. There exists long run relationship among the variables
All the variables are statistically significant and all coefficients except of human capital are more elastic
Trade openness and labor force participation have positive impact on economic growth over the time period

16. Short run relationship by using an error correction model (ECM) framework
Trade openness and labour force participation have significant impact on economic growth
The coefficient of ECT(t-1) indicates the speed of adjustment
7 percent adjustment is observed
The results are consistent with other studies

17. d. Granger Causality Analysis
The optimum lag length of VAR is k = 2 based on AIC
There is only unidirectional causality between the variables
Human capital and Labor force participation are causing economic growth at all levels

18. Economic growth causing trade openness and human capital
Human capital causing labor force participation
Causality analysis also confirms the Co-integration short-run and long-run results

19. VI. Conclusion
All variables are non-stationary and become stationary at their first difference
There exists a long-run and short-run relationship over the period
Trade openness and labour force participation have significant impact on economic growth

20. E-mail: imranchaudhry@bzu.edu.pk
The results confirm the validity of exports led growth hypothesis and New Growth Theory (NGT) for Pakistan
Thank You all
(Dr. Imran Chaudhry)