Temporal Causality between Human Capital, Trade, FDI, and Economic Growth in Cointegrated Framework. Empirical Evidence from Pakistan


  • Habib-ur Rahman Bond University, Australia and Holmes Institute, Australia
  • Ahmad Ghazali University of Gujrat, Hafiz Hayat Campus, Gujrat, Pakistan
  • Dr Ghulam Ali Bhatti University of the Sargodha, Punjab, Pakistan.




Trade, Human Capital, Economic Growth, Co-integration, Granger Causality


We investigate causal links between human capital, foreign direct investment (FDI), trade openness, domestic investment, and economic growth for the case of Pakistan. In a multivariate vector autoregressive (VAR) framework, we apply Johansen and Juselius co-integration, Granger causality, and vector error correction model (VECM) using annual data from 1980 to 2017. Results of the co-integration analysis indicate the positive association among human capital, trade openness, foreign direct investment, and economic growth for the long run. Granger causality reveals that bidirectional causality exists between human capital and trade openness, human capital and economic growth, and foreign direct investment and trade openness. The unidirectional results of Granger causality analysis reveal that human capital and domestic investment influence economies growth through FDI, and trade openness influences economic growth through domestic investment. The most obvious finding to emerge from this empirical investigation is that human capital and trade openness enhance domestic and foreign investment, which leads to the economic growth of Pakistan.

Author Biographies

Habib-ur Rahman, Bond University, Australia and Holmes Institute, Australia

Lecturer, Casual

Deparment of Business and Accounting

Ahmad Ghazali, University of Gujrat, Hafiz Hayat Campus, Gujrat, Pakistan


Department of Commerce.

Dr Ghulam Ali Bhatti, University of the Sargodha, Punjab, Pakistan.


Noon Business School.


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