Poverty and school dropout remain persistent challenges in rural areas of developing countries, necessitating holistic development strategies. Local enterprises have the potential to address these challenges; however, empirical research on their role in poverty alleviation and education outcomes in rural contexts remains limited. This study aims to address this gap.
The analysis draws on large-scale panel data from an emerging economy in Southeast Asia. Multiple econometric techniques, including instrumental variable (IV) estimation, are used to ensure the robustness of the results. The size of local enterprise activity is proxied by the total number of employees in formal enterprises at the commune level.
Results indicate that local enterprises contribute significantly to poverty reduction and are associated with lower school dropout at the primary, secondary and high school levels. These findings are consistent across different estimation models.
The IV used in this research, while valid, may be weak, potentially compromising the reliability of the estimates. The analysis is also limited to formal enterprises and a short timeframe (2016–2020) because of data constraints. The absence of data on informal enterprises and the lack of disaggregation by firm type or sector prevent deeper analysis of heterogeneous effects. Moreover, the short research period limits the ability to capture long-term or lagged impacts. Future studies should consider stronger instruments or advanced methods to address potential endogeneity and use extended panel data with more detailed firm-level information to provide a more comprehensive understanding.
The findings highlight the importance of policies that support the development and integration of local enterprises, particularly in rural areas, as a means to promote inclusive development, alleviate poverty and improve educational outcomes.
This research is among the early studies that empirically examine the dual role of local enterprises in addressing poverty and school dropout in rural areas. By using multiple econometric approaches, it produces robust and reliable findings. Furthermore, it contributes to the literature by elucidating the mechanisms through which local enterprises contribute to poverty alleviation and reduced school dropout in rural areas.
