The gap between the rich and the poor is also known as economic inequality and pertains to unequal status among individuals and groups within a society. Inequality can be measured by various economic indices among them being Gini coefficient. The major cause of inequality in modern economies is wage determination by capitalist market. Recently, the inequality between rich and poor countries has been widening than ever before. In fact, countries trapped in poverty traps are unable to attract foreign direct investment. This is because such countries are characterized by unskilled labor, lack of infrastructure as well as terrible governments. The paper will lay emphasis on why some countries are in a poverty trap and what can be done to escape the trap. It will also touch on some of the factors that account for a country being in a poverty trap.
Why Some Countries are in a Poverty Trap
Poverty trap is a self-reinforcing mechanism characterized by poverty to persisting in a country. In fact, a rich or poor status of a country is determined by its economic progress or economic laws of development. The poverty trap continues to reinforce itself if necessary steps are not taken to break the cycle. Many factors can contribute to the poverty trap in the developing world. For instance, a country can be in a poverty trap by the virtue of being landlocked as this acts as an impediment to development. In fact, such a country is unable to participate in the global economy as they lack dependable ways to export. However, some countries are landlocked but still make major strides towards development by taking advantage of the neighbours infrastructure. After all, most countries that are considered rich are dependent on their trade with other countries, infrastructure as well as foreign direct investment. In this regard, water is important and useful because it makes transportation through the sea and oceans much cheaper. Therefore, being landlocked does not allow for seaborne trade.
A country can also be trapped in poverty as a result of bad governance. This is where the government only works to benefit itself and not the people thus leading to misappropriation of resources. Bad governance does not allow for development. Similarly, bad government policies can also cause the misallocation of resources. In addition, a countrys governance can play a key role in motivating people to be productive as well as protecting their private property rights. This can be important because people can be motivated to work hard if there has been an incentive to invest their earnings in a profitable manner. Similarly, if a countrys governance is weak or poor, theres likely to be deficiency in development, lack of trust in authorities as well as inequitable growth. All these are factors that are associated with poor countries. After all, the trickle-down economic development cannot work under a bad form of governance. In addition, bad governance is likely to nurture corruption in all forms of government and this can be a disgrace to a country. Some of the weaknesses for major governance are absence of monitoring institutions as well as lack of accountability and transparency.
The other factor that account for a country being in the poverty trap is the state of natural environment. In fact, the human population is dependent on varying degrees of human natural resources. These include forests, rivers and soil among others. The optimum management of such natural resources can be a tricky task. If a country misuses or depletes its natural resources, it becomes impoverished and this can make a country poor or politically unstable. Natural resources can be used in manufacturing raw inputs or different products in the world. The depletion of natural resources can also lead a country towards a poverty trap because it might lead to a loss of the ecosystem services. It can also lead to social unrest as well as conflict in developing Nations which are some of the aspects associated with poor countries.
Today, the depletion of natural resources has become a key focus for governments and organizations such as United Nations which is encouraging countries to sustain their natural resources. This can be attributed to the fact that the depletion of natural resources is a major sustainable development issue. The other factor that can explain why some countries have fallen in a poverty trap is insufficient human capital. The systematic investments in human capital are important for any country. Human capital encapsulates education, health, skills as well as training of individuals. It is a crucial determinant of a persons and nations productivity. Besides, human capital is an impediment to economic growth. This explains why countries with limited human capital have fallen into poverty traps.
How Countries can escape from a Poverty Trap
Certain factors can make a country escape from poverty trap. One of the factors is the improvement of human capital which can be achieved through giving good tax breaks and the provision of incentives to companies and the private sector. These will promote entrepreneurship, innovation as well as encourage the rise of new role models. After all, the creation of jobs provides individuals with a source of income and this increases per capita income. Another important factor in poverty eradication is good governance. This should be prioritized in fighting poverty because embracing democracy is often not enough. Good governance is an important strategy in fighting poverty because it is a people to people movement and allows for vibrant interactions between sound leadership structures.
In addition, good governance plays a key role in upholding human ingenuity and conserving human resources. This ensures transparency in government operations and this can greatly reduce corruption and misappropriation of resources. The instigation of good governance can be denoted by a democratic government which is a benchmark for the success of nations and quality of government. A country can also escape the poverty trap by investing in agriculture and launching successful agricultural projects. This will eradicate hunger and make a country less dependent on support from developed nations. In fact, hunger eradication is in line with one of the Millennium Development Goals that ensure a countrys prosperity and reducing poverty.
Poverty reduction is important because it coincides with the interests of multinationals such as Wal-Mart in reducing global poverty. Besides, a reduction in poverty in most countries makes it easier for multinationals to expand their scope of operation as it translates to more consumers. In this regard, the reduction in poverty is beneficial for the wellbeing of citizens, multinational corporations and the international system. Nevertheless, in poverty eradication, multinationals can work in close liaison with local and international organizations in the quest of improving the individuals living standards. However, multinational corporations should not perceive the poor as individuals at the bottom of the pyramid. In fact, it ought to undertake a strategic view on how to influence the lives of the poor. After all, this might integrate the core operations of the organization.
Many factors can contribute to the poverty trap. These include poor governance, depletion or insufficient natural resources and limited human capital. However, the poverty trap is not a permanent characteristic and any country can take steps towards escaping poverty. For instance, a country can escape out of the poverty trap through the provision of a business environment that supports the creation and expansion of companies. This will improve macroeconomic conditions as well as the standards of living. Other factors that can be deployed in poverty eradication are good governance and the improvement of human capital. A reduction in poverty gap between rich and poor nations implies more consumers for multinational corporations such as Wal-Mart.