Analysis Of Vicious Circle Of Poverty

Poverty is one of the most serious world problems. In my opinion, the greatest obstacle towards the develop¬ment of an economy is poverty. The primary causes of underdevelopment have a strong relationship that they together form a circle which is vicious. This is called: “Vicious circle of poverty”. There are many different opinions about the so-called “vicious circle of poverty”. Many economists have their opinions about this topic. One of them is Ranger Nurkse. In his“Problems of Capital Formation in Underdeveloped Countries”, he wrote that: “Vicious circle of poverty is the basic cause of under-development of poor countries”. It was explained briefly by: “a country is poor because it is poor” or “Because it is poor, the country does not develop; because it does not develop, it remains poor”. That means the poor countries can not escape from the “poverty trap". Is the theory of “vicious circle of poverty” applicable to the present day economic reality of any post-socialist country? In this essay, I want to discuss the validity of the widely held notion that the underdeveloped post-socialist countries are caught in a vicious circle of poverty and stagnation.

To begin, I will summary the main idea of the Keynesian interpretation of vicious circle of poverty theory. The people in the less

Less developed countries are poor because they do not have adedquate capital resources for investment. Professor Nurkse stated that: “The main reason of vicious circle of poverty is the lack of capital formation”. A country which has poor finance is trapped in its own poverty. A country can get rid off from poverty if its rate of capital formation increases than the rate of population growth. Nurkse said: “On both sides of the problem of capital formation in poor countries a vicious circle exists.” So capital formation is the key to economic development by demand and supply of