Published on September 1, 2020

Vicious Circle of Poverty


Concept of vicious circle of poverty

In Economics the Vicious Circle of Poverty is a cyclic phenomenon where low production leads to low income and then low savings and then low investment which again leads to low production in a country. It is also called “poverty trap”. It is a common event among poor countries which reduce the growth rate of the country.

Poor countries often having a lack of infrastructure, labour, capital, resources and eventually trapped into a vicious cycle. The vicious cycle of poverty can lead a country towards recession.

Explain the Vicious Circle of Poverty

In a vicious cycle, statistical factors are connected to one another. Low income leads to a low amount of saving means low demand for goods. That’s why people are less interested in investing in business sectors which again leads to low capital to start a company and eventually leads to low production.

Cause of Vicious Circle of Poverty

  1. High Birth Rate: Undeveloped countries often show a high birth rate. Whereas the life expectancy is low in that situation. And a large number of people are competing for limited resources.
  2. Over Population: High birth rate is connected to overpopulation in undeveloped and developing countries.
  3. Lack of Resources: Limited natural or capital resources in a poor country hinder the production of the country.
  4. Lack of Education: People are less educated in poor countries. The countrymen often struggle to utilize the resources wisely. Moreover, the uneducated family has many members rather than an educated family.

Vicious Circle of Poverty in India

Economic vicious circles are still in operation in Indian Economy and as a result, poverty has become both cause and effect in the country. According to Prof. Nurkse, ” A country is poor because it is poor.” Some important cause of poverty in India is-

  • A large number of population.
  • Limited resources
  • Lack of Education
  • Corruption
  • Lack of Infrastructure
  • Gender Discrimination

How The World Dealing with Vicious Circle of Poverty

The countries trapped in the vicious cycle of poverty have often face the lack of four elements of progress—labour, capital, resources, and innovation. It is evident that The Vicious Circle of Poverty have to be broken first to come out of poverty for the poor nations.

To break the cycle the low-income countries have to increase their savings (and hence investment). Developed countries often give these countries financial support (foreign savings) to break out of this situation. Although domestic saving also plays a key role in this process.

The wise use of natural resources is also paramount in to get rid of the vicious cycle. For example, poor households in India uses 40% of high-quality forest resources to meet their living hood. Means they are overusing the forest resources.

Some economists suggest the “big push” theory, where the government have to spread education, develop skill, improve the healthcare system and invest in infrastructure.

International Organisation like World economic forum or the World Bank is taking steps to eradicate poverty worldwide by implementing SDG ( Sustainable Development Goals). World Bank Group President Devid Malpass the chairman of The World Bank said, “Addressing humanitarian crises requires immediate support and long-term development approaches,”.

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