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Updated on June 26, 2012

poverty is a great curse. It is the biggest hurdle in the way of economic development. Ranger Nurkse in ''Problems of Capital Formation in Underdeveloped Countries'' describes 'vicious circle of poverty as the basic cause of under-development of poor countries. According to him, a country is poor because it is poor. Being poor, a country has little ability or incentive to save. The low of saving leads to low level of investment and to deficiency of capital. The low of investment leads to low level of productivity. When the productivity per worker is low, the real income will obviously be low and so there poverty and vicious circle is complete.

On the side of demand when people have low real income the demand for goods is bound to be small. In the small size of market, there is no incentive of invest in real or human capital. When the rate of investment is low, the productivity of the factors of production is bound to be low. Low productivity leads to low per capital income which is rapidly absorbed by the rising population growth. The country, therefore, remained poor.

The vicious circle of underdevelopment

Lower per capita incomes make it extremely difficult for poor nations to save and invest, a condition that perpetuates low productivity and low incomes. Furthermore, rapid population growth may quickly absorb increases in per capita real income and thereby may negate the possibility of breaking out of the underdevelopment circle.

How to break this vicious circle of poverty?

Remaining poor is certainly no crime. The accepting of poverty and allowing it to continue is certainly a crime. Briefly, the vicious circle of poverty can be broken in developing countries including Pakistan by adopting following measures.

(1) Increase in savings. The vicious of circle of poverty can be broken by making serious efforts in increasing the volume of real savings both at the level of in development the govt. The govt. can also mobilize foreign savings for capital formation country.

(2) Higher per capital growth rate. The per capital growth rate should be higher than the rate of growth of population. This objective be achieved by increasing the level of employment in the country and reducing the rate of population growth. If the rate of increase in real per capital income is the same as the rate of growth of population, the real income per person will remain unchanged.

(3) Efficient use of natural resources. The less developed countries (LDC) are not making the efficient use of the natural resources available to them. At present the multi national companies (MNCs) of the advanced countries are exploiting these resources more for their own economic benefits. The economic advantages of the natural resources must pass on to the benefits of the poor masses of the LDCs.

(4) Employment of human resources. Many of the less developing countries including Pakistan are faced with serious unemployment problem. The quality of labour force is also poor. The low level of literacy, malnutrition, absence of proper medical care etc are all barriers to economic development Effective measures have to be taken for sufficient investment in human capital to break the poverty barrier of the LDCs.

(5) Increasing the stock of capital goods. The LDCs can come out of the vicious circle pf poverty if the wealthy class is motivated to make their savings available for investment in productive activates rather than using their wealth on the purchase of urban real estates, precious metals etc.

(6) Technological advance. The people in less developed countries (LDCs) can break the poverty barrier by adopting and applying advance technologies which are appropriate to the resources available to them.

(7) Role of the advanced nations. The advanced nations san help the less developed countries in breaking the poverty barrier by:

(i) expanding volume of trade with them.

(ii) increasing the flow of private and public capital in basic infrastructure.

(iii) provision of direct aid in basic social sectors such as education, health etc.

(iv) provision of soft loans for development.

(v) writing off loans.

(8) Role for the government. The government in the less developed country is in the key position to deal effectively with social institutional obstacles to growth and breaking out the vicious circle of poverty. It can greatly root out political corruption and bribery. It can provide incentives to save and invest. It can increase agricultural production by introducing effective land reforms in the country.
Vicious Circle of Poverty A'' Country is poor become it is poor:
Another major cause of economic backwardness is the vicious circle of poverty. Due to backwardness there is not optimum use of resources and due to this reason goods are not produced on the principle of specialisation and division of labour and hence production remains low. Low level of production is due to imperfect markets. Therefore, the level of income of the people is low and hence, level of savings is low. Low level of savings is responsible for low level of investment as a result capital formation rate remains low and problem of shortage of capital arises in these countries and therefore, shortage of capital is the major cause of their underdevelopment.


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    • profile image

      onesmo jason 5 weeks ago

      LDCs are also poor due to global inequality that exist between developed and under developed countries

    • profile image

      mbunda castro 20 months ago

      this is actually satisfying for you led me into the class to learn something that i had lttle knowledge of it

    • profile image

      george mlela 21 months ago

      to be frank the sermon is open my mind and transform my economy thinking to be rich and much thinking about how to over come my poverty problem in my country

    • profile image

      james nyambura 2 years ago

      The coverage is outrageous...

    • profile image

      rahul@one 2 years ago

      such a good article 4 undrstnd.........@

    • profile image

      UtteloBox 2 years ago

      Unquestionably believe that which you said. Your favourite reason appeared to be at the net the easiest thing to understand of. I say to you, I definitely get irked whilst people think about worries that they plainly don’t recognize about. You managed to hit the nail upon the highest as neatly as defined out the entire thing without having side effect , folks could take a signal. Will likely be back to get more. Thanks

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      femmy 2 years ago

      nice work !!!!keep it up!!!!!!!

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      Nuru Joseph 3 years ago

      Its real, many less developed countries lie on that circle of poverty also it is inevitable to come out on that circle.

    • profile image

      mgaya 3 years ago

      real a good article

    • profile image

      ayesha butt 3 years ago

      good article

    • profile image

      BConnect 3 years ago

      It's really a good article.

    • profile image

      a.k 4 years ago

      real good work

    • profile image

      Oscar Mkisi 4 years ago

      The theory is very important because helps the society how to overcome the problems to the underdeveloped countries.

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      daniel mushi 4 years ago

      really the man has tried a lot to explain about how situation is in developing countries.the only thing to do we as the people in LDCs we should try to follow what have been indicated. MUCH RESPECT TO YOU MR.NURKS; the intelligent man.

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      Philimon Kafugugu from zanzibar 4 years ago

      thanks ragnar nurskse for giving good idea for developed countries inorder to achive poverty or minimise

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      Emmanuel 4 years ago

      I totally agree with Ranger Nurkes from the general point of view. As an individual and being a victim of poverty from a poverty stricken country governed by a corrupt and self centered leaders, i would rather say that "A poor country is poor because its people are poor". The people are poor in terms of education, productivity, investment, savings and worse of all ignorance. If individuals can make the right decisions at the right time to get themselves out of the vicious cycle, then poor countries would find themselves out of this same cycle even before they know it. How long shall we wait for our governments to change before we do? What if it changes from frying pan to fire? If we do it as individuals by simply identifying our SWOT (strength, weakness, opportunities and threads), we can then eliminate WT and maximize our SO to alleviate poverty. The consequences will then reflect on the country as a whole. This article is an eye opener and i really appreciate its writer.

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      steriotroma 5 years ago

      My partner and i helpful to acquire at the top of life however these days I've built up the amount of resistance.

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      vinodh 5 years ago


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      matongo festo and sevelin katoto 5 years ago

      the only solution to break out f vircle is by restructuring the interaction of the Developing Nations and those Developed ones

    • profile image

      Intonsedesy 5 years ago


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      chande ismail form udom 5 years ago

      nice work........ i lake it...... thank you so much

    • profile image

      iram 5 years ago

      good work thanks

    • profile image

      chizi 5 years ago

      good work done

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      Kayumba Triphon from Marangu ttc 5 years ago

      Good work.

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      Yuster 5 years ago

      thanks very much presenter.

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      Uzair 5 years ago

      "A country is poor because it is poor" is an obsolete notion. New generally acceptable cause of poverty is wording as "A country is poor because her leadership is corrupt and incompetent", Japan, Malaysia and China raised from ground because of competent leadership.

      Nature has endowed Pakistan with following natural resources:

      1. Second largest salt mine at Khewra.

      2. Second largest coal reservoirs at Thar.

      3. Fifth largest gold mines at Reko Diq.

      4. Seventh largest copper mines Reko Diq .

      5. Eleventh largest wheat producer.

      6. Twelfth largest rice producer.

      7. Seventh country of the world with nuclear power.

      Rich in Natural Gas (27th in World Reserve Ranking)

      Excellent natural irrigated system

      Best super fertile soil.

      Gwadar sea port of economic & strategically importance.

      Northern areas -- Paradise on earth

      Pakistan is rich in cited resources but is poor due to nothing but merely of poor leadership!

    • profile image

      fff 5 years ago

      good job u guys

    • profile image

      Sharon JK 5 years ago


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      Tej Prakas Joshi 5 years ago

      Good Job....

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      ramboruiz 5 years ago

      There is a vicious, self-reinforcing cycle of poverty associated with mental illness. You become poor. Sometimes through circumstances well beyond your control, such as losing your job, or perhaps because of a pre-existing mental illness or health concerns.

      So you seek out government assistance to help you through the tough times.

      But living in poverty for any significant length of time increases all sorts of risk factors for health and mental health problems. You are more stressed, worrying about money constantly, and how you’re going to pay the bills or have enough money to eat. You eat worse because bad, processed food is so often cheaper than nutritional food. If you can still afford to live on your own, you will likely do so in a neighborhood more prone to violence, exposing you to more trauma and risk for personal violence.

      It’s a vicious circle where both poverty seems linked to greater rates of mental illness, and in some cases, certain kinds of mental illness seem linked to a greater likelihood of living in poverty.

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      Nyanja Lawrence 5 years ago

      Good job

    • profile image

      MARCUS EREFAA 5 years ago


    • profile image

      Muhammad Waseem 6 years ago

      Thanks for the writing about vicious cycle ...

    • profile image

      Munili kawawbwa UDOM 6 years ago

      It's helped me a lot. Thank's

    • profile image

      Niringiyimana Jean Baptiste 6 years ago

      thanks be to those who posted such an information.It is quite helpful,especially for learners who are interested in economic development,I wish you to have a specific chance and go on providing us the useful knowledge.

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      Prof Rashid Amin 6 years ago

      It's is necessry to development of a country...

    • profile image

      shivdaspandey 6 years ago

      nice work for l.d.c and other related sector

    • profile image

      halim lawal 6 years ago

      this is a very nice and understandable work

    • profile image

      revocatus emy 6 years ago

      nice work and it is a good perspective for development

    • profile image

      Baraka Athanas 6 years ago

      I've real appreciated the presentation.It had satisfied my thirsty on NURKSE's theory.

    • profile image

      japheth dastan 6 years ago

      this perspective is good not only for students but the expansion of knowledge for other members in the society

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      DOMINIC MBOGO[UDSM] 6 years ago


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      BRYAN JONATHAN 6 years ago


    • GNelson profile image

      GNelson 6 years ago from Florida

      Very good hub. Well thought out.

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      justmesuzanne 6 years ago from Texas

      Nice work! Voted up and interesting! :)

    • Storytellersrus profile image

      Barbara 6 years ago from Stepping past clutter

      saif, I appreciate the work you have done concerning poverty in underdeveloped nations. I think your assumptions are informative with one exception:

      I would like to point out that within developed nations, the middle class is now experiencing effects of poor health care, unemployment, powerlessness.

      In the US,for example, Wall Street has laid the burden of its debt folly on workers, while rich and powerful corporation executives see an increase in annual bonuses and take jobs overseas to underdeveloped nations where workers cost less. The expanded middle class poverty renders governments ineffective, as infrastructures collapse. I suppose you might equate these elite with bandits of the Wild West, taking without giving.

      These global elite are folk with money and little accountability. They do not value loyalty to their country of origin; decisions reflect the bottom line. They have sucked their mother countries dry.

      Perhaps you could tweak your number 7 to read, "Role of the Global Elite".

    • ravenlt04 profile image

      ravenlt04 6 years ago from Atlanta, GA

      Thanks for sharing. You seem to have some good pointers for starting to turn things around as far as poverty is concerned. I wish someone in power would listen to us! :)

    • Fuller-Life profile image

      Fuller-Life 6 years ago from Washington, DC

      Very important topic. Great hub! I agree with most of your points. I should also add that the major hinderance to individuals breaking free from poverty is not believing that they actually can come out of it and be wealthy. Labling one as poor has a negative psychological impact on their motivation and consequently their general performance, creativity and dreams. I believe that this is why most poor countries are poor and continue to be poor because they see themselves as poor and therefore, perform poorly by setting mediocre standards for themselves, which equally translates into mediocre trade agreements with rich countries. So the cycle continues. Great hub and looking forward to more.

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      Chibuzo Melvin Mobis 6 years ago from Biafra

      I totally agree with all the points you shared in this hub.Voted up.

    • Amy Becherer profile image

      Amy Becherer 6 years ago from St. Louis, MO

      Saif, the U.S. is suffering now, too. Unemployment remains stubbornly stuck. I was laid off one-year ago and at that time unemployment was over 9% and it hasn't moved. And, yes, I can no longer spend like I did. I am in survival mode and I am not alone. Fuel rose to over $4/gallon, making some job opportunities impossible if the distance was too great to afford the commute. Employers are paying minimum wage now, making it economically impossible to afford rent and groceries on the little left to take home. Many have lost their homes because the banks will not loan money, even to those still working. Food banks are running on empty and some unemployed now eat every other day. States are going bankrupt and the deeper the situation, the less it seems possible to dig back out. Great article and I plan on reading more of your writing on this topic. Thank you, Saif.

    • MSantana profile image

      MSantana 6 years ago from Madison Wisconsin

      Saif-thanks for writing about potential solutions to break the cycle of poverty.

    • Loves To Read profile image

      Loves To Read 6 years ago

      Good hub saif, raising very real issues of the poverty in underdeveloped countries. Sadly there are always those financially better off and government bodies who collect 90 percent of the countries finances then use them to support 10 percent of the population

    • stars439 profile image

      stars439 6 years ago from Louisiana, The Magnolia and Pelican State.

      Important hub. More should be done to help underdeveloped countries become better in order to provide benefits, training, and jobs for everyone who can work. Good hub. Everyone deserves a life. God Bless.

    • Goodpal profile image

      Goodpal 6 years ago

      Poverty is a multidimensional issue, although lack of income and money is generally associated with it. In developing countries, structural factors related to politics, culture, and economy perpetuate the vicious cycle of poverty. The only way to eradicate poverty is to create more employment opportunity on the one hand, and take steps to eliminate inequalities of gender, class, race or caste. Poor are vulnerable and insecure, so they need social security nets and easy access to education and healthcare. These steps empower them and finally help them come out of poverty.

      Corruption has a significant demoralizing impact on people, particularly the poor. It makes them feel helpless, powerless, and voiceless. So good governance goes a long way in eliminating poverty.

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      larrybo 7 years ago from Brookfield WI (USA)

      this is a subject I'm much interested in. I believe the development of wealth to be a cultural phenomenon, that can take place anywhere once basic survival needs have been met. As per William Bernstein in "The Birth of Plenty" the four criteria are (1) Rule of Law (2) Freedom for Rational Thought (3) Capital Markets (4) Efficient Communication and Transportation Systems. I believe any population that creates these four sityations will become wealthy

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      kato , J. Rwakyo. 7 years ago

      this work is a scolarly one; it poses out the vicious cycle. I hope it will be completed by addition of the critiques on the vicious cycle theory.