Obstacle to Economic Growth and Development: Income Inequality and the Middle Income Trap Relationship

This study analyzes the relationship between income inequality and the Middle-Income Trap using a panel dataset covering 50 countries for the period 2000–2023. Unlike most studies in the literature that primarily focus on the growth–inequality nexus, this research places the Middle-Income Trap at the center and employs three different statistical methods. First, Pearson, Spearman, and Kendall correlation coefficients are applied to examine the relationships among the variables. Second, a panel regression analysis is conducted to test the impact of income inequality on per capita income. Finally, the Dumitrescu–Hurlin panel causality test is employed to identify the direction of the relationship. The findings reveal a strong and bidirectional causality between income inequality and economic growth and development. By highlighting the significance of inclusive growth policies and structural reforms aimed at reducing inequality in the process of overcoming the Middle-Income Trap, the study provides a novel and methodologically robust contribution to the literature.