However, there are divided opinions on whether this increase should be carried out equally or not in the different economic sectors. Also becoming a problem of wealth distribution.įinally, there is consensus that increasing investment and saving are essential to promote economic development. Therefore, within the segments with higher income, savings can be promoted with better stimulus plans. Likewise, the income inequality that exists in all countries indicates that not all citizens are poor. Some economists have indicated that Nurkse exaggerated the importance of the vicious cycle of poverty in economic development.Īs a counterargument, they indicate that bad economic policies or the absence of them is more decisive. Criticisms of the vicious circle of poverty This, with the aim of spreading the effect across all sectors and using the dynamics of the vicious cycle to create a virtuous cycle. That is, the distribution must be as equitable as possible between different sectors to expand the market. For example, affecting consumption through tax policies and directing the collection directly to investment.įinally, in theory balanced investment is seen as an important element to get out of the circle. On the other hand, fiscal policy can be used to promote savings. To this end, foreign investments can be promoted, outside the local savings level. In order to break the vicious cycle of poverty, it is essential to increase savings and investment, theoretically both variables are an identity. Consequently, without capital there is no technological development, so the country remains an underdeveloped economy. With a small market, there is no incentive to invest, therefore, there is no accumulation of capital. Supply and demand analysis from the point view of vcp. Ultimately, a fundamental point of the theory is productivity per worker, which is also limited by the size of the market. in such a way as to keep a poor country in a state of poverty. A summarized version of the cycle can be seen in the following image: In conclusion, it is a repetitive process in which the cause of the cycle influences the effect and vice versa. Finally, the scarce capital employed in production leads us to point 1, restarting the cycle.Without investments there is no possibility of significant capital accumulations.Therefore, there is no incentive to invest or, failing that, it is small.Low income translates into reduced purchasing power.We started, again, with a low level of productivity.Now, on the demand side, the process is similar and is as follows: Finally, the capital deficiency leads us to point 1, completing the circle.Without savings, the level of capital is poor.Consequently, the saving capacity is low.

We start from a low level of productivity.

Define vicious circle of poverty