Eradicating Poverty in Developing Countries: The Role of Technological Innovation, Foreign Direct Investment and Institutional Quality

Abstract

This study analyzes the effect of technological innovation, institutional quality, and foreign direct investment on poverty eradication in developing countries using the data from 53 developing countries from 2002 to 2021. Different econometric techniques are used for data estimation including cross-sectional dependence test, slope homogeneity test, CIPS and CADF tests of unit root, panel cointegration test, FGLS model for parameter estimations, PCSE model for robustness estimation and Granger causality test. The findings show that FDI, institutional quality, technological innovation and education are negatively and significantly related to the poverty headcount ratio in developing countries, whereas income inequality is found to be positively and significantly linked to the poverty headcount ratio in developing countries. Lastly, the panel Granger causality test indicates a one-way causality between FDI and PHC, and TI and PHC. In addition, bidirectional causality is found between IQ and PHC. Lastly, no causality is observed between GINI and PHC, as well as between EDU and PHC, in developing countries. Therefore, it is concluded that FDI inflows, IQ and TI are imperative to reduce poverty in developing countries.