Human Development, Freedom, and Income Inequality: Evidence from ASEAN Countries

Income inequality reflects the uneven distribution of income within a country's population, with high inequality levels often leading to social and economic instability. Among the potential determinants of income inequality, the Human Development Index (HDI) has received increasing attention for its multidimensional approach to development. Rooted in Amartya Sen’s Capabilities Approach, HDI expands beyond GDP by incorporating indicators of health and education. However, it omits Sen’s core emphasis on freedom—defined as individuals' ability to realize and express their capabilities. This study introduces an Extended Freedom-based HDI (EFHDI), which includes a freedom component, and examines its effect on income inequality compared to the standard HDI. Using the ARDL-PMG model, the analysis covers ASEAN countries from 1995 to 2020. The findings indicate that while neither HDI nor EFHDI significantly affects income inequality in the short run, both exert a significant negative effect in the long run. Notably, the long-run impact of EFHDI is nearly twice that of the standard HDI, underscoring the enhanced role of freedom in promoting equitable income distribution. These results are confirmed through robustness checks using the CS-ARDL model, and Granger causality tests further reveal a bidirectional relationship between both HDI variants and the Gini index. Based on these findings, the study recommends that ASEAN policymakers integrate freedom-related reforms—such as safeguarding civil liberties, strengthening rule of law, and improving access to fair markets—into broader human development strategies to reduce long-term income inequality.