The vicious circle of poverty is an economic idea that explains why poor countries (or poor people) tend to remain poor. The term was made famous by the economist Ragnar Nurkse, who summed it up in the saying: 'A country is poor because it is poor.' It means that poverty leads to conditions that cause more poverty, so the situation keeps repeating itself in a circle. Low income leads to low savings, which leads to low investment and low productivity, which again leads to low income — and the circle continues.
The vicious circle of poverty explains why the poor tend to remain poor.
It was made famous by economist Ragnar Nurkse.
Nurkse's famous line: 'A country is poor because it is poor.'
Supply side: low income → low saving → low investment → low productivity → low income.
Demand side: low income → low purchasing power → small market → low investment → low income.
Poverty becomes self-repeating, trapping the economy.
It can be broken by raising investment, productivity, education and income.
A 'vicious circle' is a chain of events in which one problem leads to another, and that problem comes back to make the first problem worse — so the situation keeps going round and round.
The vicious circle of poverty means that poverty itself creates the conditions that keep people or nations poor. Because incomes are low, people cannot save or invest; because there is no investment, productivity stays low; and because productivity is low, incomes remain low. In this way poverty becomes self-repeating.
Ragnar Nurkse explained this idea with the famous line: 'A country is poor because it is poor.'
Nurkse described the vicious circle of poverty from two sides:
Supply side (capital formation): Low income → low savings → low investment → low capital formation → low productivity → low income. Because people earn little, they cannot save; without savings there is little investment; without investment, productivity and income stay low.
Demand side (market size): Low income → low purchasing power → small size of market → low investment → low productivity → low income. Because people earn little, they cannot buy much; the small demand discourages investment, keeping production and income low.
Both sides keep the economy trapped in poverty.
The vicious circle can be broken by raising income, savings, investment and productivity. Common measures include:
When income rises, savings and demand also rise, which encourages investment and productivity — turning the vicious circle into a positive (virtuous) circle of growth.
The vicious circle of poverty is the idea that poverty creates conditions that cause more poverty, so it keeps repeating itself. Low income leads to low savings, which leads to low investment and low productivity, which again leads to low income. Economist Ragnar Nurkse summed it up as: 'A country is poor because it is poor.'
Nurkse described two sides. The supply side: low income → low savings → low investment → low capital formation → low productivity → low income. The demand side: low income → low purchasing power → small market size → low investment → low productivity → low income. Both keep the economy trapped in poverty.
The concept was made famous by the economist Ragnar Nurkse. He explained how poverty is self-repeating with his well-known statement, 'A country is poor because it is poor,' describing it from both the supply (capital) side and the demand (market) side.
It can be broken by raising income, savings, investment and productivity — through more investment in industry and infrastructure, encouraging savings and bringing in capital, improving education, skills and health, using better technology, and government programmes that create jobs and raise incomes. This turns the vicious circle into a virtuous circle of growth.
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