Bridging Equity and Ecology: The Impact of Income Inequality on Green Growth Dynamics

Abstract

This study addresses the relatively unexplored question of how income inequality shapes environmentally sustainable growth. It begins by revisiting theories of technological diffusion, arguing that when earnings are heavily skewed, mass demand for low-carbon products contracts, coalitions for ecological reform fragment, and the adoption of green innovation slows. Annual observations for a balanced panel of Global South economies over 1990–2024 supply the empirical foundation. Employing pooled mean group and augmented mean group autoregressive distributed-lag estimators, and corroborating results with cross-sectional variants, the analysis traces both short- and long-run dynamics between inequality and a composite index of green growth that blends carbon-efficient output with renewable-energy penetration. The econometric evidence shows that higher inequality is consistently associated with weaker green performance in the long run. Short-run coefficients are mixed: in some years, inequality appears neutral, while in others it briefly stimulates investment by affluent cohorts; nevertheless, once cross-sectional dependence and heterogeneous slopes are accommodated, the prevailing long-run effect remains unequivocally negative. These results carry clear policy implications. Because concentrated income restricts broad participation in low-carbon markets and erodes political support for ambitious climate action, governments should embed equity objectives within decarbonisation strategies. Progressive taxation, expanded social safety nets, and inclusive education can enlarge the consumer base for green technologies and strengthen social coalitions behind stringent environmental standards. Complementary instruments—such as carbon dividends, targeted green subsidies, and affordable green finance—can further accelerate diffusion. Enhancing progressive redistribution, therefore, serves not only social justice but also builds resilience against ecological and economic shocks for prosperity.