Free Essay: The Main Causes of Income Inequality in Developing Countries

From time immemorial income inequality has been a hugely debated matter in the world. Even as early as 1960s there were disparities between the incomes of developed and developing countries. These disparities were believed to be the cause of the huge gaps in terms of levels of development between different countries. It is estimated that the richest countries in the world earn more than 70% of total earnings in the world. In fact, experts state that this gap is likely to widen with the ongoing trend in the developing economies.

There are many reasons why there is a huge income inequality in developing countries as compared to their developed counterparts:

• High populations. Most of the developing nations have high populations with very little resources. The countries with high financial incomes have very low populations. This makes it easier for them to cater for their citizens’ needs as compared to the densely populated developing nations. As a result of the high populations, the developing countries are usually unable to share resources among their populaces ending up with many citizens living below the poverty line.
• Huge expenditures. The developing countries, more often than not thrive on debt. This is because they spend much more than they make. Huge expenditures are not a new notion for developing nations. They started borrowing from the developed countries in the 1970s in order to meet the huge expenditures. This has resulted in most developing countries being heavily indebted and this feeds onto the income disparities.
• Poor policies. Developing countries often make poor policies by aping what the developed countries have done. This copying is done in a blind manner without researching on the impact the policies may have on their economies. As a result of these poor macroeconomic and micro-economic policies, the developing countries have stagnated or even worsened in terms of economic development.
• Imbalance in industrial investment. The developed countries have heavily invested in industrialization and this has earned them good income. Yet this has not stopped most of the developed countries from investing in essential sectors such as agriculture. On the contrary, most developing countries which are trying to industrialize are neglecting essential sectors such as agriculture. Unfortunately for these developing countries, such sectors absorb more than 50% of the workforce since most of the populace is unskilled. This has greatly contributed to mass unemployment and led to high gaps between earnings of the developing countries and the developed nations.
• Poor infrastructure. Poor infrastructure has been a major hindrance to development in the developing countries. This is because it impacts negatively on trade and hinders access to important services such as education, healthcare and other necessities.
• Lack of technological development. One of the reasons why developed countries have gained so much wealth over the past decades is because of technological innovation and development. Automation has not only made work easier, it has reduced costs of production in many sectors. This is not the case in the developing countries where technological development is still lagging behind. Poor technology is reflected in the earnings of essential sectors such as agriculture and manufacturing sectors.
• Unskilled labor. Lack of sufficient skilled labor is also another reason why developing countries continue to earn less income as compared to the developed countries. This is because most of the populations in developing countries are not well educated and yet these countries are moving from labor intensive industries to the capital intensive ones. This renders most people unemployed hence widening the gap in income inequality.

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References

https://www.imf.org/external/pubs/ft/fandd/2001/12/wade.htm

http://en.wikipedia.org/wiki/Economic_inequality

http://digitalcommons.iwu.edu/cgi/viewcontent.cgi?article=1072&context=econ_honproj