Impact of Interaction between Human Capital and Foreign Trade on Productivity in the Selected OIC Members

Foreign trade provides scale economies, technology progress, optimal resource allocation, and competition enhancement in products, which cause possibly the rise in productivity. An important characteristic of the role of foreign trade in the technological catch-up of countries is the complementary nature of technological change and human capital formation. Thus, foreign trade and human capital and their interaction effects are likely to have a crucial impact on total factor productivity. This paper examines the interaction between human capital and foreign trade on total factor productivity using panel data of the selected OIC members over the period 1980-2005. The empirical results indicate a positive effect of human capital on total factor productivity while the effect of trade in manufacturing sectors on their productivity is not statistically significant, However, exports of primary goods and consumer imports affect negatively the dependent variable. But an interacted relationship of trade and human capital has significantly a proper effect on productivity of the selected OIC members.