Vicious Circle Of Poverty - Essay

VICIOUS CIRCLE OF POVERTY The concept of vicious and virtuous circle of poverty as formulated by Ragnar Nurkse describes the state in which the underdeveloped countries (UDCs) are entrapped in, where poverty seems to be the cause and effect of poverty. It means that if you are poor, you are bound to remain poor. Vicious Circle of Poverty, according to Nelson, is a circular constellation of forces tending to act and react upon one another in such a way as to keep a country in a state of poverty. It implies that in the presence of such forces, achieving higher levels of economic growth becomes no longer automatic or spontaneous. This is because poverty hinders the inducement to invest, especially given the small size of the markets in the UDCs. Thus it results in a shortage of capital accumulation in these economies. Due to this reason, lack of capital accumulation is the central problem faced by the UDCs in their path of development. Another factor contributing to the vicious circle of poverty is the inelasticity of demand faced by the UDCs at the early stages of development Working of the theory Nurkse looked at the problem of vicious circle of