The Impact of Technological Innovation, Foreign Direct Investment, and Institutions on Poverty: An FGLS Analysis in Developing Countries
DOI:
https://doi.org/10.65150/EP-jefrr/V1E5/2025-02Keywords:
Poverty, innovation, FDI, FGLS method, institutions, inequality, 62 developing countriesAbstract
This study examines the impact of technological innovation, foreign direct investment (FDI), and institutional quality on poverty reduction across 62 developing countries from 2000 to 2023. Using advanced econometric FGLS method, the findings reveal that FDI, technological innovation, institutional quality, and education significantly contribute to poverty reduction, while income inequality (measured by the GINI index) exacerbates it. A bidirectional causal relationship exists between institutions and poverty, whereas FDI and innovation exhibit unidirectional effects on poverty reduction.
The research highlights institutional quality (governance, rule of law) as the most powerful driver of poverty alleviation, surpassing FDI, which has limited impact without supportive institutional frameworks. Technological innovation, particularly ICT, plays a key role in improving access to essential services, though its effectiveness depends on local absorptive capacities. The study also underscores the detrimental role of inequality and the long-term importance of human capital, despite its delayed tangible effects.
In conclusion, effective poverty reduction strategies must integrate institutional strengthening, FDI attraction, innovation investments, and inequality mitigation. The authors advocate for context-specific approaches aligned with Sustainable Development Goals (SDGs). These findings illuminate the complex interplay among these factors and call for further research to refine policy recommendations for diverse national contexts.
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Copyright (c) 2025 Hamid FAYOU , Jihad OUADDIA (Author)
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