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Development Economics

Vicious Circle of Poverty and Measures to Break V.C.P.

Vicious Circle of Poverty (V.C.P.):

LDCs are trapped in set of inter-related problems or a set of such circles perpetuating themselves by what Nurkse would call “constellation of forces”. These circles are usually known as the Vicious Circle of Poverty (V.C.P.)

According to Ranger 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.”

According to Meier and Baldwin:

“A country is poor and remains poor because its human and natural resources remain unutilized. People in less developed countries are mostly technologically backward. They are illiterate, lack initiative and entrepreneurial ability. The absence of skilled and trained labour leads to under-utilization and even mis-utilization of natural resources. A country is poor because it is caught up in underdevelopment trap.”


we can say A country is poor because it is poor. Now are going to explain the vicious circle of poverty from demand and supply side.

Supply Side:

LDCS have little ability to save due to low level of income. Low saving leads low investments and low productivity, which adversely affect the per capita income in the Country. Low per capita income and high consumption again creates the problem of low saving capacity and keep them in a circle which is called vicious circle of poverty.

Demand Side:

On the other hand, low level of real income reflecting to low level of demand which shows less incentive for investors and negatively affect the rate of investment in country. Due to low rate of investment, productivity of factors of production also remains low. All these forces keep the per capita income at low level and the economy again reach at the stage where due to low per capita income demand for goods is to be small. In this way, inter-related forces creates a circle of problems known as V.C.P.

How to Break these Circles?

As it is stated that “a country is poor due to its poor policies”, to break these circles of poverty and don’t let them severe, LDCs can adopt following measures:

1. Savings:

The root cause of vicious circle of poverty is low savings level in LDCs. Vicious circles can be broken by making efforts to increase the volume of saving both at individual and government level.

Strong monetary and fiscal measures can be helpful to raise the level of domestic and foreign saving to meet the capital requirements for investment.

2. Role of State:

It is also the responsibility of Govt. to break these circles. Government should make serious effort to break these circles by providing employment opportunities to their citizens. Government should plan and takes certain steps to uplift the employment level to enhance the income level.

3. Utilization of Natural Resources:

LDCs are not getting the full benefit from their available natural resources. These resources either are not being fully utilize or misused in LDCs due to number of obstacles. To prevent economy from the problems of V.C.P., optimum utilization of available natural resources should be ensured.

4. Human Resources:

In LDCs shortage of human resources such as doctor, engineers, teachers. writers etc. is one of the primary cause of poverty. Due to poor education of health facilities and shortage of training institutions, LDCs are facing problems of human capital shortage.

Effective measures are required lo bridge up the deficiency of human capital to raise their income and living standards. Raising income level will increase the per capita income and saving level in the country that will be helpful in breaking circles of poverty.

5. Rode of Technology:

Technology plays vital role in the way of economic progress of a country. Government should make affective arrangements to provide facilities of modern technology for mass production to break these circles of poverty.

6. Role of Advanced Nations:

Advanced nations can help the LDCs to break these circles by providing them economic assistance in the form of soft loan, and aid for social sector. Foreign aid should be used very carefully to create employment for the nations to raise their income, spending and saving levels. This process will provide greater help to break these circles.

7. Reducing Population Growth Rate:

High population growth rate is also one of the main features of developing countries. High population growth rate reduces the per-capita income and creates many economic and non-economic problems in the society.

Government should take appropriate measures to retard the rapid growth rate in population to rise the per capital income and to prevent society from many other non-economic problems which is necessary to break these circles.

8. Awareness:

Financial institutions should properly propagate their schemes to develop awareness among people. Majority of our population lives in rural areas. People in rural as hoard money and make it stagnant, saving schemes should be started in these areas to mobilize these resources for investment.

9. Political and Social Contribution:

Most important to break vicious circle of poverty are political stability, constant Policies, honest and efficient administration etc. Planners should make effective economic plans. Government should perform its duties purely for the best of nation to achieves the targets of growth and development.


V.C.P. 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.

See also:

Obstacles to Economic Development in Developing Countries

Remedial Measures for Economic Development

Characteristics of Developing Countries



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