TAILIEUCHUNG - Lecture Development economics - Lecture 11: Nurkse's Model of Vicious Circle of Poverty (VCP) and economic development

Lecture Development economics - Lecture 11: Nurkses Model of Vicious Circle of Poverty (VCP) and economic development. In this chapter, students will be able to understand: Definition and Explanation, Breaking VCP, Shortcomings/Flaws of the Model, Factors of Nelsons Trap, Methods to Escape from Trap. | Theories of Economic Development - 1 Lecture 11 Nurkses Model of Vicious Circle of Poverty (VCP) and Economic Development Definition and Explanation According to Prof. Nurkse: "It is the vicious circle of poverty (VCP) which is responsible for backwardness of UDCs". Vicious circle of poverty: "Implies a circular constellation of forces tending to act and react in such a way as to keep a country in the state of poverty". In such state of affairs the process of capital formation remains obstructed and restricted. This VCP is presented as: We start with low real income which results in a meager savings which in turn will check investment. Low level of investment would create deficiency of capital which in second round leads to low productivity. This again results in low income. Here, the circle perpetuates the low level of development. From the supply side, there is low income, low savings, low investment, capital deficiency and low productivity. On the demand side, low income, low demand for goods, limited home market and low investment. Breaking VCP According to Nurkse, a break through on demand side can be brought about by dashing initiatives on the part of entrepreneurs. On the supply side the disguised unemployment ranging between 20% to 30% of total agri. labor force can be mobilized for financing capital formation. And the parents of such disguised unemployed will go on feeding them. It means that in Nurkses model the hidden food surplus will finance the process of economic growth. Shortcomings/Flaws of the Model Entrepreneurs Responsible For Breakthrough: According to Nurkse to break the VCP entrepreneurs will play an important role. But he does not suggest the means for such funds. As in poor countries the savings are low, hence for the supply of funds the credit creation will have to be restored. But Nurkse rejects it. Disguised Unemployment: According to Nurkse, the disguised unemployment will finance for growth. But the domestic resources are not .

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