Infrastructure development, economic growth and income inequality: evidence from India

Purpose The purpose of this study is to examine how infrastructure development contributes to economic growth and income inequality in India using annual data from 1990 to 2022. Design/methodology/approach The study applies the Autoregressive Distributed Lag (ARDL) model proposed by Pesaran et al. (2001) to estimate both the short-run and long-run growth impact of infrastructure development and other regressors. The Zivot–Andrews test is used to identify the structural break in the data. The Granger causality test is used to examine the direction of causality between infrastructure development and economic growth. A time series regression model is used to assess the impact of infrastructure development on income inequality. Findings The study presents several key findings. Firstly, the bounds test confirms the presence of long-run cointegrating relationships between economic growth and its regressors, including infrastructure development. Secondly, infrastructure development exerts a significant positive impact on economic growth both in the short and long run. Thirdly, the causality test indicates bi-directional causality between infrastructure development and economic growth. Fourthly, government expenditure has a negative and significant impact on economic growth in the long run. Fifthly, regression results indicate that infrastructure development plays a significant role in reducing income inequality by enhancing access to essential services. Sixthly, government expenditure and economic growth have no significant impact on income inequality in India. Practical implications This study offers empirical insights into how infrastructure development contributes to economic growth and income inequality in India. As India pursues its ambition of becoming a developed nation by 2047 and fulfilling its commitments to reduce income inequality (SDG-10), the findings underscore the importance of scaling up investments in infrastructure, an area where India still lags behind compared to developed nations and many emerging economies. The study emphasized the need for enhancing public spending on infrastructure development as a critical policy tool for achieving sustained economic growth and reducing inequality in line with Sustainable Development Goal-10 (SDG-10). Originality/value Previous research mainly concentrated on the growth impact of infrastructure development. There is a notable scarcity of literature assessing the impact of infrastructure development on income inequality in India. This study aims to address this research gap by investigating the impact of infrastructure development on income inequality in the context of the Indian economy. To the best of the author’s knowledge, this paper represents the first attempt to empirically study the impact of infrastructure development on income inequality. It contributes significantly to the existing knowledge by providing compelling evidence of the positive impact of infrastructure development on economic growth and income inequality in India.