Elucidate major causes of a vicious circle of poverty with a diagram.
- There are circular relationships known as the ‘vicious circles of poverty that tend to perpetuate the low level of development in Less Developed Countries' (LDCs).
- Nurkse explains the idea in these words: “It implies a circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country in a state of poverty.
- For example, a poor man may not have enough to eat; being underfed, his health may be weak; being physically weak, his working capacity is low, which means that he is poor, which in turn means that he will not have enough to eat and so on.
- A situation of this sort relating to a country as a whole can be summed up in the proposition: “A county is poor because the country is poor”.
- The vicious circle of poverty operates both on the demand side and the supply side.
- On the supply side, the low level of real income means low savings.
- The low level of saving leads to low investment and to deficiency of capital.
- The deficiency of capital, in turn, leads to low levels of productivity and back to low income. Thus the vicious circle is complete from the supply side.
- The demand-side of the vicious circle is that the low level of real income leads to a low level of demand which, in turn, leads to a low rate of investment and hence back to deficiency of capital, low productivity and low income.
Concept: Vicious Circle of Poverty
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