Trade Liberalization, Human Capital & Economic Growth : A Comparative Study of India and Brazil

This paper examines the effects of trade liberalization on economic growth, both directly and indirectly through human capital. It focuses on two developing countries, India and Brazil, whose post-liberalization growth paths have differed significantly. While trade liberalization is widely recognized as a means to increase economic growth and improve living standards in developing countries, empirical outcomes remain mixed. This study contributes to the limited empirical literature on the indirect effects of trade openness through human capital and offers country-specific evidence of the impact of liberalization on economic growth, insights valuable for future trade policy reforms. Using annual data from 1970 to 2023, the study employs the Autoregressive Distributed Lag (ARDL) model and bounds testing approach, as well as the Error Correction Model (ECM) to capture the short-run dynamics. The results reveal that trade openness does not have a notable impact on economic growth for either country. In Brazil, however, trade openness has a positive impact on human capital, suggesting an indirect growth channel through education. Foreign direct investment (FDI) also reveals a positive impact on economic growth in Brazil. Finally, physical capital has a positive impact on economic growth and human capital for Brazil, while human capital and population growth impact human capital development positively.