TRADE OPENNESS, INSTITUTIONAL GOVERNANCE, AND HUMAN CAPITAL IN ASIA: WHAT DOES OMAN'S POSITION TELL US?

Abstract

This study investigates the link between trade openness, institutional governance quality and human capital formation in 36 Asian and Gulf Cooperation Council (GCC) economies between 2002 and 2024 and the comparative performance of the Sultanate of Oman with these economies. The Human Capital Index is composed from education, health and digital-access indicators using a principal component analysis (PCA) and the governance index is based on the five dimensions of the World Governance Indicators (WGI). In fixed-effects panel estimation, which is validated against random effects using a Hausman specification test, the results indicate that the key correlate of the accumulation of human capital within countries over time is the quality of institutional governance, whereas trade openness has a more cross-sectional than within-country impact. There is a weak negative within-country association for foreign direct investment, which is likely to be attributable to the resource-extraction nature of flows in some sample economies. A country-specific fitted-value analysis shows that Oman was behind its trade-and-governance-implied human capital level in the early 2000s but has since caught up, and then surpassed, that level starting from 2011 a trend that aligns with the human capital priorities outlined in Oman Vision 2040. Oman is the last in the GCC sub-sample, with a governance score that is close to that of Saudi Arabia, indicating a policy gap that could be filled in tertiary education and in investment in digital skills. The paper provides an empirically and regionally comparative assessment of Oman's human capital situation that can guide the current diversification process and human capital policy formulation.