Unlocking the potential of investment and human development for poverty reduction: the moderating role of governance in OIC countries

Purpose This study aims to assess the relationship among investment, human development and poverty reduction across the member countries of the Organization of Islamic Cooperation (OIC), while investigating the moderating role of governance. This study examines whether improvements in governance enhance investment's poverty-reducing impact, focusing on macroeconomic investment, proxied by gross capital formation (GCF), and human development, proxied by the Islamic Human Development Index (IHDI). Design/methodology/approach The study employed a quantitative research design using a panel of 43 OIC countries from 2007 to 2024. Data were obtained from the World Development Indicators (WDI), the Worldwide Governance Indicators (WGI), the World Bank, and the UNDP databases. Estimation Techniques include Ordinary Least Squares (OLS), the random-effects model, and Dynamic Panel Estimation using GMM. Findings The baseline model shows that GCF is positively linked to poverty in the absence of governance, suggesting that investment alone may not be associated with inclusive outcomes. However, when governance is considered as a moderator, the direct effect of GCF becomes negative, while the interaction (GCF*GOV) is statistically significant and positive. Furthermore, Islamic Human Development also plays an important role in shaping these dynamics. The direct effect is positive, but when the interaction is introduced, the direct effect of IHDI becomes negative; however, the interaction remains positive and significant. These results highlight that institutional mechanisms must be strengthened to get the benefits of GCF and IHDI. Originality/value The study contributes to the literature by considering macroeconomic investment, Islamic human development, and governance in a unified empirical network of poverty reduction for OIC countries.