Vicious Circle Theory

Vicious Circle Theory

In the conventional wisdom of the vicious of poverty, poor nations and people may remain perpetually poor given primary causes of poverty which are so closely interconnected that together they have been said to form a vicious circle with one factor leading to another (Adebayo, 2008). Low income leads to low savings, low savings are the reason for low investment, and low investment means low productivity leads to low income this effects development. Within this framework, it shows the circle of demand and supply as it relates to poverty. When income is low then there is low productivity per person and we see then in this case that the country is too poor to save. On the demand side when incomes are low there is also low investment.

Economist and policy makers have attempted to explain how availability of capital constitutes part of an overall development strategy (HDI Report, 2010). Consequently, theory of microfinance and urban-rural development is derived from the general theory of development (Eboh et.al, 1995; Ezeh et.al, 2004; Hulme et.al, 2006). According to this theory, every country which embarks on the course of economic development necessarily encounters a set of constraints imposed by inelasticity on the supply of strategy inputs.

Unless efforts are directed towards the loose reduction of these constraints by producing substitutes for these factors with inelastic supply, the whole process of economic development is bound to be greatly depressed (Hayami and Ruttam, 1971). Microfinance and rural economic development conceptualization embraced by most country in recent years refers to a process through which sustained increase in the productivity and income of the urban-rural workers and household are attained (Eboh et al 1995, Adamu 2010).