This document discusses factors affecting economic growth and development and the vicious circle of poverty. It defines economic growth as an increase in real GDP per capita over time, while economic development brings both quantitative and qualitative changes through initiatives like infrastructure, health, education, etc. Key factors influencing growth are discussed as capital formation, natural resources, trade, and economic systems. Non-economic factors include human capital, technology, political freedom, social organization, and corruption. The vicious circle of poverty is then examined in terms of how low capital, labor, and technology can perpetuate poverty through mechanisms like low savings, child labor, and lack of infrastructure and innovation.

1. Presented by
Harshitha.S

2. CONTENTS
Factors affecting Economic Growth and
Economic Development
Vicious circle of poverty with respect to
Capital, Labour, Technology.

3. ECONOMIC GROWTH
 The 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 GDP
 Growth 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.

4. 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.

5. 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.

6. Factors influencing Economic Growth
and Development
Factors of Economic
Growth and
Development
Economic factors
Non-Economic
factors
1. Capital Formation
2. Natural resources
3. Marketable surplus of
agriculture
4. Conditions in foreign
trade
5. Economic system
1. Human resources
2. Technical know-how and
general education
3. Political freedom
4. Social organization
5. Corruption
6. Desire to develop

7. ECONOMIC FACTORS
1. 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.

8. 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.

9. NON-ECONOMIC FACTORS
1. 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.

10. 3. Political Freedom
 The process of development and underdevelopment 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.

11. 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.

12. 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.

13. Vicious Circle
of Poverty

14. 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 rates
 Low salary
 Low infrastructure and corrupt governance
 Business failure
 Ignorance, lack of skills and technology
 Unhealthy or diseases
 Disaster
 Inability to access to resources such as land, finance, information, technical
assistances, etc.
 No on-going education

15. Vicious circle of poverty
classification
 Vicious circle of poverty- Capital
 Vicious circle of poverty- Labour
 Vicious circle of poverty- Technology

16. Vicious circle of poverty- Capital

17. Vicious circle of poverty- Capital
 Classification 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.

18. Vicious circle of poverty- Labour

19. Vicious circle of poverty- Labour
 Starting 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.

20. 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

21. 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.

22. Combination of vicious circle of
poverty

23. Thank you
Presented by
Harshitha.S