Trade openness and human capital formation in Sub-saharan Africa: Evidence from a panel ARDL approach

This study examines the impact of trade openness on human capital formation in Sub-Saharan Africa, distinguishing short-run dynamics from long-run effects. Using panel data for 35 countries from 1996 to 2023, a Panel Autoregressive Distributed Lag model estimated via the Pooled Mean Group approach is applied. The framework incorporates institutional quality, financial development, foreign direct investment, and income levels to capture the broader structural environment. The findings reveal a positive and statistically significant long-run relationship between trade openness and human capital, while short-run effects are mixed and occasionally negative due to adjustment costs. Importantly, the impact of trade openness depends on domestic absorptive capacity. Strong institutions and developed financial systems enhance the translation of external integration into human capital gains by supporting technology diffusion and investment in skills. Overall, trade openness acts as a long-term driver of human capital formation, highlighting the need to align trade policies with institutional, educational, and financial reforms to achieve sustainable and inclusive development. Key Words: Trade openness, Human capital formation, Financial development, Sub-Saharan Africa, Panel ARDL, Education and development