ECONOMIC GROUTH AND

MODELS
Vicious circle of poverty
Presented by
Jalil Ahmed
Reg# 2k16-MS-ECO-04
Acknowledgement
Thanks to almighty Allah and
also thanks to my teacher who
give me this opportunity to
come on the stage and give
presentation here.
Definition
According to R. Nurkse

The less developed countries remain

poor due to domestic obstacles. These
obstacles act and react upon one another
in such a way that they form a vicious
circle. They keep the country in a
perpetual low level of development.
Explanation:
Now we can say a country is poor
because it is poor. Vicious circle of
poverty can be explained with the help
of a simple example to prove that a
country is poor because it is poor.

Simple Example
A poor man may not have enough to eat,
being under-fed, his health may be weak,
being physically weak, his working capacity
is low, this will give him less return which
means that he is poor, all this means that he
will not have enough to eat and so on.
How is Vicious Circle of Poverty
Created?
Accordingly, a country is poor because it is poor.
Being poor, a country has little ability to save. The
low level of saving leads to low level of investment
and to deficiency of capital. When the productivity
is low, the income will be low and so there is
poverty and the vicious circle is complete.
Demand side Diagram

poverty

Low Low
producti producti
on on

Low
Low
investme
income
nt

Lack of Low
capital demand
Supply side diagram

Poverty

Low Low
supply income

Low Low
investment saving

Lack of
capital
MEASURES TO REMOVE
VICIOUS CIRCLE OF
POVERTY
ECONOMIC MEASURES
1- Raising the Stock of Capital and
Foreign Exchange

There is deficiency of saving,

investment and foreign exchange
reserves in Pakistan.
Increase in saving, investment
and foreign exchange reserves
will lead to capital formation; it
results in removal to vicious
circle of poverty.
2- Control on rapidly growing Population

Pakistan is facing a serious

problem of backward over
population.

Control on rapidly growing

population is another measure to
break the vicious circle of
poverty.
3- Use the Advanced Technology

Most of the developing countries use

backward techniques of production.
To make rapid economic development, it
is necessary to adopt advanced
technology.
To break the vicious circle of poverty, we
should use the modern methods of
production in all the sectors of economy.
4- Check the Inflation

Due to inflation, the purchasing power of

people decreases, it leads to increase in the
consumption proportion and decrease the
saving.
This whole situation causes to create vicious
circle of poverty.
In developing countries like Pakistan, the
purchasing power of the people is low due to
high rate of inflation.
5- Optimum Use of Natural Resources

No doubt, natural resources are

available in developing countries. But
it is not possible for them to use these
resources in the best way.
The best possible use of natural
resources is necessary to remove the
vicious circle of poverty.
6- Reduce the Burden of Internal and
External Debts
Government has to pay a huge amount for
services charges on internal and external debts
in developing nations.
Due to external debts, the development plans
and polices are under the influence of external
forces.
Accordingly, self-reliance policy should be
adopted and we should reduce the dependence
on debts.
7- Balanced Growth Strategy
Balanced growth strategy refers to the growth of
the various sectors at the same time.
Vicious circle of poverty operates over all the
sectors of an economy.
Development of any one sector cannot remove
the vicious circle of poverty.
Balanced growth strategy is compulsory to
remove the vicious circle of poverty.
There is inter-relationship between agriculture
and industrial sector. So, growth and
development of both is necessary to check the
vicious circle of poverty.
8- Enhance the Economic Growth Rates
Vicious circle of poverty can be
checked through increasing the
economic growth rates.
Increase in economic growth rate
refers to the growth and development
of economy.
Economic growth and development
will cause progress and prosperity in
the country.
9- Surplus in Balance of Payment
To break the vicious circle of poverty,
surplus in balance of payment is
needed.

By increasing exports and decreasing

imports we can achieve surplus in
balance of payment.
10- Reduction in Unemployment
The major reason of poverty is
unemployment.
Maximum job opportunities
will be provided to population
to remove the vicious circle of
poverty.
Conclusion
Vicious circle of poverty is the major
obstacle in way of economic development.
Without its removal, economic
development is impossible.
It can be removed through adopting self-
sufficient policy.
Government should adopt labour intensive
technologies to remove unemployment and
poverty.