Revealing the Role of Technological Innovation, Institutional Quality and Foreign Direct Investment in Impacting Human Development in Developing Countries: Insights from FGLS and PCSE Models

The study reveals how technological innovation, institutional quality, and foreign direct investment drive sustainable human development, providing strategies for policymakers to address inequalities and enhance well-being in developing countries. For this purpose, the data from 53 developing countries from 2002 to 2021 is used in the study. 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 foreign direct investment, institutional quality, technological innovation and number of physicians are positively and significantly while total population is negatively and significantly related to the HDI in developing countries. On the other hand, educational expenditures are positively but insignificantly related to the HDI. The impact of the interaction terms IQ*TI and IQ*FDI on HDI is positive and statistically insignificant. In contrast, FDI*TI is found to be positively and significantly related to the HDI. The panel Granger causality test results show that there is a unidirectional causality between IQ and HDI, and TI and HDI. In addition, bidirectional causality is found between PHY and HDI. Lastly, no causality is observed between EDUE and HDI. Therefore, keeping in view the findings, it is concluded that FDI, technological innovation and institutional quality are imperative to improve the HDI in developing countries.