The Poverty Trap
Nearly a third of the countries in the world suffer from a poverty trap, which is a self-reinforcing mechanism that causes and sustains poverty. A self-perpetuating cycle of poverty makes it even harder to achieve economic progress and reduces the overall marginal propensity of such countries for consuming. The implication is that the more countries are stuck in poverty, the more the global market eventually shrinks that is inherently detrimental for such multinational corporations as Walmart, because they rely on a wide consumer base, spread all over the globe. This paper explains why some countries are caught in the poverty trap, and then describes some measures that have been applied by countries to escape the poverty trap. The analysis indicates that the scarcity of natural resources, conflicts, political instability, bad governance, and geographic disadvantages are the main reasons why the majority of the world developing countries suffer from the poverty trap, and it is a good sourse for the toefl writing topics.
Factors that Sustain the Poverty Trap
Countries that are struggling to escape the poverty trap are dealing with a number of factors that sustain high poverty levels. One of the core factors that cause the poverty trap is the presence of conflicts and political instability. Studies on the international political economy of rich and poor nations indicate that almost 73% of the poorest people in the world reside in countries that are either involved in conflicts and wars or are still recovering from their previous military involvement. Political instability in such countries as South Sudan and Somalia create a vicious self-perpetuating cycle of poverty. Conflicts prevent states from the economic growth, which results in the decline of incomes, on the one hand, and the rise of unemployment, on the other hand, that further encourages the youth to engage in war. As the war intensifies, foreign direct investment reduces because investors flee from the country that further deprives it of critical economic resources and opportunities for growth.
The scarcity of the natural resources is also one of the primary factors. Many people assume that countries endowed with natural resources are better empowered to make economic progress. However, in some instances, the reality is the opposite. Mineral-rich countries such as Sudan, Myanmar, Angola, and Congo are struggling to eliminate the poverty trap, despite of being endowed with plenty of natural resources. The primary explanation is the fact that ordinary citizens rarely benefit from the abundance of natural resources. In most instances, only few elites benefit from the exploration of such natural resources as oil, gold, and diamond.
The last major factor is geographical disadvantages. For instance, nearly 38% of the poorest population of the world resides in landlocked countries . The success of these countries is, therefore, dependent on the goodwill of their neighbors. Some countries, such as Switzerland, which has supportive neighbors, have achieved economic success as they effectively participate in the global economy. However, some other states such as Uganda and Rwanda have no ways to export their produce and, thus their access to the global market is limited, which significantly disadvantages their residents.
How Countries Might Escape the Poverty Trap
The poverty trap can be escaped as it has been demonstrated by a few states that have overcome the difficulties and experienced economic growth by becoming developed countries. One of the ways to achieve it is to institute correct economic policies, specifically targeted at budget control. Bolivia is one of the countries that have implemented budgetary control in order to achieve economic success during the 1980s. The country was experiencing hyperinflation with pricing rising at thousands of percentage annually, so that the government printed more money in order to fulfill its obligations. Budgetary controls such as the implementation of an appropriate debt ceiling and austerity measures, the control of government spending, and investment in the manufacturing and service sectors in 1986 revived the country’s economy in less than three years.
In order to complement the budgetary controls, Bolivia has also liberalized its economy. It accelerated the economic development in the country for the decade from 1996 till 2006. The country managed to escape the poverty trap and moved into the middle-income earning country with one of the strongest economies in South America. However, it returned to the trap again. It is not clear whether the liberalization of the market proved to be the reason if it, but it is apparent that it encouraged the economic growth and helped Bolivia to reach economic prosperity during the first decade. Lastly, as many other poor countries, Bolivia has also sought to prompt economic growth and eliminate the gap between the rich and the poor through expanding the social welfare system. Throughout the 1990s Bolivia implemented a social protection scheme that enabled millions of people to escape the abject poverty.
Reduction of the Poverty Gap
It is evident that it is in the best interest of rich nations to reduce the global gap between prosperous and poor countries. One of the implications of it would be the fact that rich countries will not have to channel foreign aid to poorer countries. Instead, they will use those resources to further improve their domestic economic growth. Furthermore, rich countries will also benefit from a stabilized international economic system as there will be more predictability and less fluctuation in demand and supply. Such multinational corporations as Walmart will benefit from the reduction of the global gap between the rich and the poor countries, because it would represent an increased market. When poorer nations experience economic growth, the disposable income of the people increases, and it prompts a rise of the global consumption. Therefore, Walmart and other MNCs’ have a greater chance of optimizing their profitability.
In conclusion, it is evident that the misuse of natural resources, conflicts, political instability, bad governance, and geographic disadvantages are the main factors that sustain the poverty trap in poor countries. It is in the best interest of Walmart and the other multinational corporations to reduce the global gap between rich and poor countries. A reduction in the poverty gap will improve Walmart’s sales, as it will expand the consumer base both in the U.S. and abroad.
Factors that Sustain the Poverty Trap
Countries that are struggling to escape the poverty trap are dealing with a number of factors that sustain high poverty levels. One of the core factors that cause the poverty trap is the presence of conflicts and political instability. Studies on the international political economy of rich and poor nations indicate that almost 73% of the poorest people in the world reside in countries that are either involved in conflicts and wars or are still recovering from their previous military involvement. Political instability in such countries as South Sudan and Somalia create a vicious self-perpetuating cycle of poverty. Conflicts prevent states from the economic growth, which results in the decline of incomes, on the one hand, and the rise of unemployment, on the other hand, that further encourages the youth to engage in war. As the war intensifies, foreign direct investment reduces because investors flee from the country that further deprives it of critical economic resources and opportunities for growth.
The scarcity of the natural resources is also one of the primary factors. Many people assume that countries endowed with natural resources are better empowered to make economic progress. However, in some instances, the reality is the opposite. Mineral-rich countries such as Sudan, Myanmar, Angola, and Congo are struggling to eliminate the poverty trap, despite of being endowed with plenty of natural resources. The primary explanation is the fact that ordinary citizens rarely benefit from the abundance of natural resources. In most instances, only few elites benefit from the exploration of such natural resources as oil, gold, and diamond.
The last major factor is geographical disadvantages. For instance, nearly 38% of the poorest population of the world resides in landlocked countries . The success of these countries is, therefore, dependent on the goodwill of their neighbors. Some countries, such as Switzerland, which has supportive neighbors, have achieved economic success as they effectively participate in the global economy. However, some other states such as Uganda and Rwanda have no ways to export their produce and, thus their access to the global market is limited, which significantly disadvantages their residents.
How Countries Might Escape the Poverty Trap
The poverty trap can be escaped as it has been demonstrated by a few states that have overcome the difficulties and experienced economic growth by becoming developed countries. One of the ways to achieve it is to institute correct economic policies, specifically targeted at budget control. Bolivia is one of the countries that have implemented budgetary control in order to achieve economic success during the 1980s. The country was experiencing hyperinflation with pricing rising at thousands of percentage annually, so that the government printed more money in order to fulfill its obligations. Budgetary controls such as the implementation of an appropriate debt ceiling and austerity measures, the control of government spending, and investment in the manufacturing and service sectors in 1986 revived the country’s economy in less than three years.
In order to complement the budgetary controls, Bolivia has also liberalized its economy. It accelerated the economic development in the country for the decade from 1996 till 2006. The country managed to escape the poverty trap and moved into the middle-income earning country with one of the strongest economies in South America. However, it returned to the trap again. It is not clear whether the liberalization of the market proved to be the reason if it, but it is apparent that it encouraged the economic growth and helped Bolivia to reach economic prosperity during the first decade. Lastly, as many other poor countries, Bolivia has also sought to prompt economic growth and eliminate the gap between the rich and the poor through expanding the social welfare system. Throughout the 1990s Bolivia implemented a social protection scheme that enabled millions of people to escape the abject poverty.
Reduction of the Poverty Gap
It is evident that it is in the best interest of rich nations to reduce the global gap between prosperous and poor countries. One of the implications of it would be the fact that rich countries will not have to channel foreign aid to poorer countries. Instead, they will use those resources to further improve their domestic economic growth. Furthermore, rich countries will also benefit from a stabilized international economic system as there will be more predictability and less fluctuation in demand and supply. Such multinational corporations as Walmart will benefit from the reduction of the global gap between the rich and the poor countries, because it would represent an increased market. When poorer nations experience economic growth, the disposable income of the people increases, and it prompts a rise of the global consumption. Therefore, Walmart and other MNCs’ have a greater chance of optimizing their profitability.
In conclusion, it is evident that the misuse of natural resources, conflicts, political instability, bad governance, and geographic disadvantages are the main factors that sustain the poverty trap in poor countries. It is in the best interest of Walmart and the other multinational corporations to reduce the global gap between rich and poor countries. A reduction in the poverty gap will improve Walmart’s sales, as it will expand the consumer base both in the U.S. and abroad.
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