Vicious Circle of Poverty

The vicious circle of poverty on the supply side of capital operates in this manner poverty in the under – developed countries means that the per capital income in such countries is low. Since per capital income is low , their capacity to save is low . When people cannot make even the two ends meet with their low income the question of saving does not arise. That is why the rate of savings in the under- developed countries is extremely low. The rate of savings being low. The rate of , investment in turn is bound to be low.  Since the rate of investment is low, the rate of capital formation is low and hence there is great shortage of capital in the under-developed countries. Since the amount of capital per man is of vital importance in determining productivity, the level of productivity per worker is extremely low in the under-developed countries. The productivity per worker being low, the real income per capita is low and there is poverty. This is how the vicious circle is complete on the supply side. Owing to poverty  or low per capita income saving is less and when saving is less the rate of investment  is low. The rate of investment being low,  t he amount of capital per worker is small and when capital per worker is small, productivity per worker is small .Since productivity is low , the income per capita is low which means that the country is poor. In this way , we see that the cause of a country’s poverty is poverty itself and as Nurkse says “Under- developed countries are poor because they are poor”