Abstract: Studies revealing the positive relationship between
trade and income are often criticized with the argument that
“development should mean more than rising incomes". Taking this
argument as a base and utilizing panel data, Davies and Quinlivan [1]
have demonstrated that increases in trade are positively associated
with future increases in social welfare as measured by the Human
Development Index (HDI). The purpose of this study is twofold:
Firstly, utilizing an income based country classification; it is aimed
to investigate whether the positive association between foreign trade
and HDI is valid within all country groups. Secondly, keeping the
same categorization as a base; it is aimed to reveal whether the
positive link between trade and HDI still exists when the income
components of the index are excluded. Employing a panel data
framework of 106 countries, this study reveals that the positive link
between trade and human development is valid only for high and
medium income countries. Moreover, the positive link between trade
and human development diminishes in lower-medium income
countries when only non-income components of the index are taken
into consideration.