Non-linear links between human capital, educational inequality and income inequality, evidence from China

Abstract

This study aims to reveal short-run and long-run asymmetries among human capital, educational inequality, and income inequality in China over the period 1975–2020 using a nonlinear autoregressive distributed lag (NARDL) model. The estimated long-run asymmetry parameters reflect that positive shocks to secondary education (SSE) and higher education (HE) are negatively correlated with income Gini coefficient. The adverse shocks of secondary education (SSE) and higher education (HE) stimulate the Gini coefficient of income, but the effect of secondary education (SSE) on the Gini coefficient of income is not significant, while that of higher education (HE) is significant. The results also highlight that, in the long run, there is a significant asymptotic effect of the education Gini coefficient (educational inequality) and economic growth on the income Gini coefficient (income inequality). However, physical capital stock has a significant adverse effect on income inequality in the long run. Higher education significantly promotes educational inequality, while the square of higher education significantly reduces educational inequality, thus verifying the inverted U-shaped Kuznets curve hypothesis between higher education and educational inequality. Strategically, this study suggests higher education as a powerful tool for mitigating income inequality by emphasizing educational equity.