Towards Sustainable Development: New Insights into the Factors Affecting Human Development in EU Countries

Human development in the European Union remains uneven, and it is still unclear how economic, social, environmental, and institutional conditions jointly shape it. Understanding this question is essential for EU cohesion and sustainability policy, since Member States differ widely in governance capacity and development trajectories. This study proposes and empirically tests an extended Triple Bottom Line framework in which governance is treated as a fourth sustainability subsystem and examines its influence on the Human Development Index (HDI) in the 27 EU member states over 2000–2024 (675 country-year observations). Composite dimension indices are constructed through principal component analysis and validated with KMO and Bartlett diagnostics, and the analysis combines two-way fixed-effects models, Mundlak within–between decomposition, dynamic panels, a parsimonious system GMM estimator, and Driscoll–Kraay standard errors. The institutional dimension is the most robust positive correlate of HDI across all specifications, and its long-run effect remains significant. The environmental dimension is negatively and significantly associated with HDI, revealing a development–environment tension rather than a welfare effect, while CO2 emissions display a positive coefficient in disaggregated models, reflecting development-stage and energy-structure effects. The economic dimension matters mainly as a long-run structural difference between countries, not as short-run within-country variation, and institutional and environmental effects are more pronounced in Central and Eastern Europe than in Western Europe. The findings imply that EU policies aimed at strengthening governance quality and supporting a just green transition—including the European Green Deal, the Recovery and Resilience Facility (RRF), and cohesion policy instruments—are central levers for sustaining human development.