Global Uncertainties and Income Disparities in Developing Countries
DOI:
https://doi.org/10.54938/ijemdss.2026.05.3.772Abstract
Income inequality has remained an important concern for social scientists since the 1980s. Global uncertainties profoundly exacerbate income disparities in developing countries, in addition to economic and institutional factors. This study investigates the relationship between world uncertainty and income inequality for a panel of 52 developing countries from 1996 to 2024.The study employs the Generalized Method of Moments to address endogeneity, unobserved heterogeneity, and dynamic panel data bias. The authors conducted a robustness analysis using the Two-Stage Least Squares method.
The empirical findings reveal that an increase in world uncertainty widens income inequality in developing countries. Heightened uncertainty discourages new investments, slows economic activity, and disproportionately affects low-income groups. Moreover, an increase in GDP per capita enhances income inequality at early stages of development and then lowers it, providing evidence for the Kuznets curve. High inflation enhances income inequality, whereas the distributional impacts of official development assistance, human capital, and quality of institutions are favorable. These findings are robust to estimation methodology.
The study suggests more effective crisis-management strategies to deal with income inequality during uncertain periods. The study also calls for increasing HC investments to reduce income inequality by raising wage income. Development aid may be an effective tool to mitigate INEQ.
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