Causes of Income Inequality in Developing

Countries

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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 microeconomic 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
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