Question

Why doesn’t capital flow to poor countries?

Answer 1

Ans) The capital flow in poor countries is very less relative to rich countries. The reason is Vicious Circle of Poverty.

The vicious circle of poverty is an idea of interrelated variables clarifying the poor advancement of individual nations. Variances in monetary conditions related with progress are leveled by consequent population development. The vicious circle of poverty is an issue of developing nations, when a low degree of per capita pay doesn't permit saving and investment at the level important to accomplish the base pace of financial development.

Families don't have the chance and motivations to save, low wages mean low request, because of which poor assets and absence of impetuses obstruct interest in physical and human capital, and subsequently work efficiency stays low. What's more, since the particular yield decides the salary of every representative, at that point individual pay will likewise be low.

As indicated by Keynesian, the underlying low degree of pay decides low utilization and low reserve funds, and low utilization decreases purchaser request, limits the household market and low investment development rates, which prompts low profitability and low generation development upgrades, which decides the low level per capita salary.

The vicious circle of poverty can be overwhelmed by expanding the pace of development of capital gathering, raising the degree of venture to 10% of GDP while at the same time controlling populace development. At that point there will be an expansion in genuine pay per capita, which will prompt an increment in reserve funds and to an increment in labor efficiency and individual salary. Interior sources can defeat the vicious circle of poverty.