Inequality and sustainable development: Insights from an analysis of the human development index

Abstract

In this paper, we connect two lines of research in the development economics literature: the analysis of the effect and transmission channels of inequality on economic development and the discussion about the necessity for a broader measure for development. We estimate the association between income inequality and the Human Development Index and its components in a panel of 117 countries over the period of 1970 to 2010. In doing so, we find evidence for (a) a negative long-run association between inequality and human development and (b) different short-run associations between inequality and different dimensions of human development: a positive one with economic development but a negative one with educational outcomes, hinting at particular transmission channels. In addition, we detect (c) that those associations can be even more pronounced in countries with low levels of development, reconciling seemingly conflicting findings in the literature.