Human Capital and Income Inequality in China: An ARDL Analysis

Abstract

This paper examines the dynamic relationship between human capital and income inequality in China over the period 1990–2023 using an ARDL–ECM framework. Income inequality (GINI) is modeled as a function of human capital, economic growth, trade openness, financial development, and governance quality. Bounds testing confirms a stable long-run cointegrating relationship across the full sample period. The long-run estimates show that human capital has a strong inequality-reducing effect, whereas trade openness and financial development significantly increase inequality; growth and governance have no robust direct impact once structural factors are controlled for. Short-run results indicate that positive shocks to human capital can temporarily widen inequality, while about 59% of any deviation from the long-run equilibrium is corrected within one period. These findings fill a gap in single-country long-time series evidence and highlight the need to coordinate human-capital policies with trade, financial, and governance reforms under China’s high-quality development and common prosperity agenda.