Income Inequality, Innovation and Human Capital Nexus: A Comparative Analysis of Asia-Pacific Countries

Abstract

Global economy has shown a rising income inequality as well as increasing the influence of innovations. Economic theory of income inequality-innovation nexus and empirical evidence are counter intuitive. Therefore, the present study attempts to examine a comparative analysis of income inequality, innovation and human capital relationship among the 15 Asia-Pacific countries using timeseries data from 1990 to 2020. The study employs the Augmented Dickey-Fuller and Phillips-Perron unit root test methods to examine the stationarity of variables and the ARDL bounds co-integration approach to estimate the long run relationship between income inequality, innovation and human capital development. Results of the bounds co-integration test indicated that there is a long run equilibrium relationship between income inequality, innovation and human capital in both models with interaction term and without interaction term for all the 15 countries. With human capital as a mediating variable, findings of the long run ARDL model indicated that innovation variable adversely affects income inequality across countries and over time in majority of the sampled countries. This study examined the innovation-inequality connection over time and unraveled the puzzle why innovations generate income inequality in some countries but not in others. Therefore, it is suggested that there is a dire need to relook at the innovation system that should use both bottom-up and top-down approach with a right mix to have an impact on the reduction of income inequality in the long run.