VICIOUS CIRCLE OF POVERTY

Presented by Harshitha.S

CONTENTS

Factors affecting Economic Growth and Economic Development

Vicious circle of poverty with respect to Capital, Labour, Technology.

ECONOMIC GROWTHThe former is primarily to study how countries can advance their

economies.An increase in the amount of goods and services produced per

head of the population over a period of time.Measured as the percent rate of increase in real gross domestic

product, or real GDPGrowth is usually calculated in real terms – i.e., Inflation-

adjusted.Measurement of economic growth uses national income

accounting.Economic growth is generally distinguished from development

economics.

ECONOMIC DEVELOPMENT

Economic development is the sustained, concerted actions of policy makers and communities that promote the standard of living and economic health of a specific area.

Also be referred to as the quantitative and qualitative changes in the economy.

Such acts can involve multiple areas including development of human capital, critical infrastructure, regional competitiveness, social inclusion, health, safety, literacy, and other initiatives.

Economic growth and Economic development

Economic growth Economic development Increase in the economy's real

output of goods and services in the country.

Gradual increase in one of the components of Gross Domestic Product: consumption, government spending, investment, net exports.

Brings quantitative changes in the economy . i.e. Increases in real GDP.

More relevant metric for progress in developed countries.

Widely used in all countries. Growth is a necessary condition for

development.

Changes in income, savings and investment along with progressive changes in socio-economic structure of country.

Growth of human capital indexes, a decrease in inequality figures, and structural changes that improve quality of life in developing nations.

HDI, gender- related index (GDI), Human poverty index (HPI), infant mortality, literacy rate etc.

Brings qualitative and quantitative changes in the economy.

Factors influencing Economic Growth and Development

Factors of Economic Growth and

Development

Economic factorsNon-Economic

factors

1. Capital Formation2. Natural resources3. Marketable surplus of

agriculture4. Conditions in foreign

trade5. Economic system

1. Human resources2. Technical know-how and

general education3. Political freedom4. Social organization5. Corruption6. Desire to develop

ECONOMIC FACTORS1. Capital formation The strategic role of capital in raising the level of production It accelerate the pace of growth, increase the income savings ratio and rises the

level of investment.

2. Natural resources The principal factor affecting the development of an economy is the natural

resources. The existence of natural resources in abundance is essential. A country deficient in natural resources may not be in a position to develop rapidly. Ex: Japan and India are the two contradictory examples.3. Marketable surplus of agriculture The excess of output in the agricultural sector over and above

what is required to allow the rural population to subsist. With the development of an economy, the ratio of the urban

population increases and increasing demands are made on agriculture for food grains.

These demands must be met adequately; otherwise the consequent scarcity of food in urban areas will arrest growth.

4. Conditions in foreign trade Foreign trade has proved to be beneficial to countries which have been able to set-up

industries in a relatively short period. These countries sooner or later captured international markets for their industrial

products. Developing countries should specialize in production of primary products as they

have comparative cost advantage in their production. The developed countries, on the contrary, have a comparative cost advantage in

manufactures including machines and equipment and should accordingly specialize in them.

5. Economic system Vast economic system across the world. The Third World countries finds their own

path of development. They cannot adopt a laissez faire economy. Further, these countries cannot raise necessary resources required for development.

The latest experiments in economic planning in China have shown impressive results.

Therefore, from the failure of economic planning in the East European socialist countries it would be wrong to conclude that a planned economy has built-in inefficiencies which are bound to arrest economic growth.

NON-ECONOMIC FACTORS1. Human resources Man provides labour power for production to a country. If labour is efficient and skilled, its capacity to contribute to growth will be high. The productivity of illiterate, unskilled, disease people is generally low and does not

provide any developmental work in a country. Human resources remain either unutilized or the manpower management remains

defective. The same people will become burden to the economy.

2. Technical know-how and general education As the scientific and technological knowledge advances, man discovers more and

more sophisticated techniques of production which steadily raise the productivity levels.

Schumpeter attributed much to the capitalist development. Since technology has now become highly sophisticated, still greater attention has to

be given to Research and Development for further advancement.

3. Political Freedom

The process of development and under development are interlinked with the political freedom.

Under-development countries like India, Pakistan, Bangladesh, Sri Lanka, Malaysia, Kenya and a few others, which were in the past British colonies, was linked with the development of England.

England recklessly exploited them and appropriated a large portion of their economic surplus.

Dadabhai Naoroji explained in his classic work ‘Poverty and Un-British Rule in India’ that the drain of wealth from India under the British was the major cause of the increase in poverty.

India during that period, which in turn arrested the economic development of the country.

4. Social organization

People show interest in the development activity only when they feel that the fruits of growth will be fairly distributed.

Mass participation in development programs is a pre-condition for accelerating the growth process.

Whenever the defective social organisation allows some groups to appropriate the benefits of growth, masses will participate in the development projects undertaken by the State.

The new agricultural strategy has given rise to a class of rich peasantry creating widespread disparities in the countryside.

5. Corruption Corruption is a negative factor in their growth process. Until and unless countries root-out corruption in their administrative

system, it is most natural that the capitalists, traders and other powerful economic classes will continue to exploit national resources in their personal interests.

The regulatory system is also often misused The licenses are not always granted on merit. The art of tax evasion has been perfected in the less developed countries by

certain sections of the society.

6. Desire to develop Development activity is not a mechanical process. The pace of economic growth in any country depends to a great extent on

people’s desire to develop. If in some country, the level of consciousness is low and the general mass of

people has accepted poverty as its fate, then there will be little hope for development.

And like all human enterprises, its outcome will depend finally on the skill, quality and attitudes of the men who undertake.

Vicious Circle of Poverty

Vicious circle of poverty In economics, the cycle of poverty is the “Set of factors or events by which

poverty, once started, is likely to continue unless there is outside intervention“. The poverty cycle can be called the “Development trap" when it is applied to countries.

Causes of poverty

• Low productivity ratesLow salaryLow infrastructure and corrupt governanceBusiness failure Ignorance, lack of skills and technologyUnhealthy or diseasesDisaster Inability to access to resources such as land, finance, information, technical

assistances, etc.No on-going education

Vicious circle of poverty classification

Vicious circle of poverty- Capital Vicious circle of poverty- Labour Vicious circle of poverty- Technology

Vicious circle of poverty- Capital

Vicious circle of poverty- CapitalClassification of vicious circle of poverty under capital.In some countries poverty refers to low real income

.Real income remains low due to low level of capital which is because of low level of saving and low investment.

Reduces the capital formation in the nation.Finally leads to low economic growth.Slow economic growth chains to the lack of education, standard

of living, health in the society.The production activity also declines with the low development

activities.The phase of economic growth and economic development

declines gradually which is called as underdeveloped economy.

Vicious circle of poverty- Labour

Vicious circle of poverty- LabourStarting with low income of the labour in a family give

raise to child labour.Child labour is the crucial factor which increases all

other activities such as low education of child; hunger, disease, death rate, etc.

Low satisfaction of basic necessities like water, food, shelter.

Inefficiency in the workers, poor job perspectives, low standard of living.

They are the small contributors to the economy.This effects the economic growth and economic

development.This leads to low Gross Domestic Product(GDP) and

low Gross Domestic Product(GDP) per-capita income.

Vicious circle of poverty- Technology

Low income level

No Research and

Development

Low Inventions and no

infrastructure

Slow Economic Growth

No Economic Development Vicious

circle of poverty

Vicious circle of poverty- Technology• Low per capita income of the economy effects the technological

change in the nation.• The nation will lag behind in the technology.• Low research and development.• No word of inventions by the people.• No advanced infrastructure in the country• Low human development index, physical standard of living and

other measures of economic growth and development.• Slow economic growth• Negative economic development.

Combination of vicious circle of poverty

Thank you

Presented by Harshitha.S