The Effects of Human Development and Economic Growth on Income Inequality: Evidence from Three East Asia Countries
https://doi.org/10.56225/finbe.v4i1.445
Keywords:
Income Inequality, Human Development Index, Economic Growth, East Asia CountriesAbstract
Income inequality remains a pressing social and economic issue in East Asia, despite rapid economic growth and significant improvements in human development. Countries such as China, Japan, and South Korea have experienced divergent patterns of inequality due to variations in social policies, labor market structures, and the distribution of economic growth. While prior studies have examined the relationship between economic growth, human development, and income inequality, there is limited consensus regarding the relative influence of human development versus economic expansion, particularly in the context of East Asia. This research addresses this gap by investigating the impact of the Human Development Index (HDI) and economic growth on income inequality across three East Asian countries from 2003 to 2022. A quantitative panel data approach was employed, using balanced data from 60 observations over 20 years. The study applied the Fixed Effect Model (FEM) with cross-sectional dummy variables to account for country-specific heterogeneity. Descriptive statistics, panel regression diagnostics, and robustness tests were conducted to ensure model validity. The results indicate that HDI has a significant negative effect on income inequality, suggesting that improvements in education, healthcare, and living standards contribute to more equitable income distribution. In contrast, economic growth shows a positive but statistically insignificant effect, implying that growth benefits are unevenly distributed and may not substantially reduce inequality. Among the countries studied, China exhibits the highest individual effect on income inequality, followed by Japan and South Korea. These findings underscore the crucial role of human development in reducing income disparities. Policy implications include prioritizing investments in education, healthcare, and social safety nets, alongside the implementation of inclusive growth strategies to ensure equitable economic benefits. Future research should expand the analysis to other regions and explore sectoral and micro-level mechanisms linking human development to income inequality.
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