Inequality, Growth and Development: An Empirical Investigation on the Fragile Five Economies

21st International Conference of MEEA, İstanbul, Türkiye, 29 - 30 Kasım 2025, (Yayınlanmadı)

This study investigates the intricate relationship between income inequality, economic growth, and socio-

economic development in the Fragile Five economies Turkey, Brazil, India, Indonesia, and South Africa over the

period 2000–2024. These emerging market economies, often characterized by macroeconomic volatility, external

financing dependencies, and structural vulnerabilities, provide a unique context for analyzing how inequality

interacts with growth trajectories and development outcomes in transitional contexts.

The core objective of the paper is twofold: first, to explore the dynamic interplay between inequality and economic

growth; and second, to assess whether sustained economic growth has translated into broader human development

in these economies, or whether it has been accompanied by rising disparities. Given the increasing attention on

inclusive growth within the international policy discourse, the paper further aims to evaluate the effectiveness of

pro-growth policies in reducing poverty and inequality within the Fragile Five.

The empirical analysis is based on a balanced panel dataset covering the years 2000 to 2023. The primary data

sources include the World Bank’s World Development Indicators (WDI), the Standardized World Income

Inequality Database (SWIID), the Human Development Index (HDI) from UNDP, and the IMF’s World Economic

Outlook. Key variables include the Gini coefficient (as a measure of income inequality), GDP per capita growth,

Human Development Index scores, and several control variables such as inflation rate, unemployment, public

expenditure, and openness to trade.

Methodologically, the study employs panel data econometrics with fixed effects and dynamic GMM estimators

to address potential endogeneity issues. A two-stage approach is adopted: the first stage examines the impact of

inequality on growth using a dynamic panel regression framework, while the second stage investigates the reverse

relationship, namely how growth and public policies affect inequality and development indicators. Additionally,

quantile regression techniques are utilized to capture heterogeneity across countries and time, particularly focusing

on whether inequality-growth dynamics differ under various institutional and macroeconomic conditions.

Preliminary findings suggest a complex, non-linear relationship between inequality and growth. While moderate

inequality appears to be growth-enhancing in some contexts due to capital accumulation and investment

incentives, persistent high inequality is found to be detrimental to long-term development outcomes, especially in

terms of human capital formation and social mobility. In most Fragile Five countries, periods of rapid economic

growth did not consistently lead to proportional improvements in HDI scores or reductions in poverty levels,

indicating a weak transmission mechanism from growth to inclusive development. The study also identifies the

critical role of democratic institutions, education expenditure, and redistributive fiscal policies in mediating this

relationship.

This paper contributes to the literature by offering a focused empirical analysis on the Fragile Five, a group often

overlooked in comparative inequality-growth studies. By integrating insights from development economics,

institutional theory, and macroeconomic policy analysis, it provides a nuanced understanding of how emerging

economies can pursue more equitable and sustainable growth paths.