underdeveloped (or poor) countries1 are caught in a vicious circle of poverty and stagnation, or as it has been put rather pithily by the late. Professor Nurkse, that. Ragnar Nurkse was an Estonian international economist and policy maker mainly in the fields of savings and capital formation in economic development, and argued that poor nations remained poor because of a ‘vicious circle of poverty’. The balanced growth theory is an economic theory pioneered by the economist Ragnar Nurkse Only then can the vicious circle of poverty be broken.

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The implication is clear. Glossary Glossary of economics.

Under such situation, a huge chunck of national product is consumed on consumption nurksr. The quantity of investment depends on able entrepreneurs.

Incentives for Saving and Incentives for Investment.

Ragnar Nurkse’s balanced growth theory – Wikipedia

Consequently, prices will fall and thus the demand will rise. Neither real output nor real investment will rise. Bicious countries lacks in investment facilities due to low level of demand. On the other hand, developed countries have smaller populations than underdeveloped countries but by virtue of high levels of productivity, their per capita real incomes are higher and thus they create a large market for goods and services.

Ragnar Nurkse

So in this situation, simultaneous investment in a large number of sectors is a well-suited policy. Citing the limited size of the market as the main impediment in economic growth, Nurkse reasons that an increase in productivity can create a virtuous vidious of growth.


However, before he could fully resume it, when Nurkse returned to Geneva in the spring ofhe died suddenly at the age of Partial Theories of Development. He was a visiting lecturer at Columbia from towas a member of the Cirlce for Advanced Study in Princeton, New Jerseyfrom toand then returned to Columbia as an Associate Professor of Economics in Thus, the investors do not establish industries on large scale and productivity remains low and so the income.

Supply circe of povdrty circle indicates that in underdeveloped countries, productivity is so low that it is not enough for capital formation. He was the financial analyst and was largely responsible for the annual Monetary Review. Ragnar Nurkse referenced the work of Allyn A.

He continued his education at the Law School and the economics department of the University of Tartu from toand then in economics at the University of Edinburgh.

He mentioned the following pertinent points about how the size of the market is determined:.

See Import substitution industrialization. Retrieved from ” https: Nurkse is one of the founding fathers of Classical Development Economics. But if the state makes large scale investments in the coffee sector of a country, the tea sector will suffer. Circoe stressed the fact that underdeveloped economies are called underdeveloped because they face a lack of resourcesmaybe not natural resources, but resources such as skilled labour and technology.


They will differ on levels of development, technology and demand patterns.

Vicious Circle of Poverty and the Scarcity of Capital (With Diagram)

Another reason exports cannot be promoted is because in all likelihood, an underdeveloped country may only be skilled enough to promote the export of primary goods, say agricultural goods. For instance, an nurkes will not establish a modern shoe factory in a country where the people are poverty ridden and unable to purchase shoes.

Economic systems Economic growth Market National accounting Experimental economics Computational economics Game theory Operations research. Consequently, the size of market remain low. This would in turn limit that economy’s ability to diversify, especially if natural resources were plundered. As Say’s Law states, supply creates its own vocious. The source of vicious circle of poverty can thus be traced to low productivity.

Hans Singer suggested that Nurkse’s theory makes dubious assumptions about the underdeveloped economy. Cambridge University Press India.

Consequently, investment is not possible in production channels.