Inflation as a Transmission Channel for Sustainable Real Income Growth in Emerging Economies, 2000–2024

This study examines the macroeconomic and socioeconomic determinants of sustainable real income growth in emerging economies, emphasising inflation as a transmission mechanism. Using balanced panel data for selected emerging economies from 2000 to 2024, the analysis applies a fixed-effects estimator supported by a Hausman test (χ² ≈ 107.88, p < 0.001), indicating correlated country-specific heterogeneity. The results show that education (EDU) and employment (EMP) are positively and statistically associated with real income growth, while foreign direct investment (FDI) exhibits a positive but initially less precisely estimated direct effect. Mediation analysis reveals that EDU, EMP, and FDI are negatively associated with inflation, and inflation in turn exerts a significant dampening effect on real income. Sobel and bootstrap tests confirm statistically significant indirect effects, indicating partial mediation through inflation. Dynamic system-GMM estimates reinforce the stability of the main relationships after addressing potential endogeneity and persistence. The findings suggest that sustainable real income growth in emerging economies depends not only on human capital development, labour market expansion, and quality investment inflows, but also on maintaining price stability to preserve welfare gains.