Income Inequality and Development: An ARDL Based Approach

India even as one of the world’s fastest growing economies while taking rapid strides in poverty reduction, still demonstrates alarming income inequality as a persistent problem. This paper aims to examine the impact of changes in the share of manufacturing & services to GDP, human capital (HDI) and Government expenditure on income inequality in India in the post reform period 1991-2020.

The study uses auto-regressive distributed lag (ARDL) model which is equally effective in case of endogeneity of explanatory variables and facilitates the identiation of long run estimators to study long-run cointegration between the variables and estimate short-term dynamics.

The analysis shows that HDI reduces while contribution of manufacturing & services to GDP and government expenditure worsens income inequality in the long run. The results conrm cointegration among the factors in the long and short run.

The study adds to the literature on determinants of income inequality providing insight into the role of rising contribution of manufacturing and services to GDP on income inequality rather than just economic growth.