According to him "a circular constellation of forces, tending to act and react upon one another in such a way as to keep a country in a state of poverty." The vicious circle of poverty adversely affects the accumulation of capital in economically underdeveloped countries.
If this vicious circle of poverty is broken then development will follow.
According to Nurkse "the expansion of the market can be realized only through
a process of balanced growth, where people in different countries, working with new and better tools, become each other's consumers.
The vicious cycle works on both the demand and supply sides. On the supply side, there is a small capacity to save due to a low level of income, the low level of income results in low productivity which is again due to a deficiency of capital which is the effect of a low capacity to save. On the contrary, on the demand side, the inducement to invest is low due to low demand in the economy, which is because of low income. This is how the vicious circle works on both supply and demand sides.
Operation of the vicious circle of poverty limits the size of the market in underdevelopment countries.
Nurkse believes that the vicious circle of poverty can be broken through balanced growth. he was of the view that the vicious circle can be broken by enlarging the size of the market which cannot be done by an individual investor.
It would be possible with the help of a group of investors in the market. Therefore, the enlargement of the market is possible with the help of the development of complementary industries. This can break the vicious circle of poverty and release the forces of growth and expansion. He also suggested that market size can be expanded by salesmanship and advertising and infrastructure development.
Nurkse was of the view that the principle of balanced growth needs a balance between different sectors of the economy during the process of economic growth and development.
These are :
(1) Balance between agriculture and industry.
(2) Balance between domestic and foreign trade.
(3) Balance between demand and supply factor.
Lewis viewed that if agriculture stagnates, the capitalist sector can not grow, capitalist profit remains a small part of the national income, and savings and investments are correspondingly small. Smooth economic development
requires that industry and agriculture should grow together.
Some of the benefits of balanced growth:
1. Balanced growth can better promote equitable and balanced regional development
2. Balanced growth can pave the way for the division of labor and thus can raise the specialization and development of the productivity of the labor force.
3. When there is balanced growth of both agriculture and industry, it will lead to the creation of social overhead capital for effective growth of all these sectoral activities
4. it will boost foreign trade as the expansion of both internal and external markets of products in an economy.
5. It will lead to better utilization of both natural and human resources of an economy.
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