Provide an economic explanation of why poverty exists.When you travel to South America, you encounter countries that have a vast amount of natural resources, and very large labor forces. However,...

Provide an economic explanation of why poverty exists.

When you travel to South America, you encounter countries that have a vast amount of natural resources, and very large labor forces. However, despite an abundance of these resources, you also see a lot of poverty. 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Speaking simply from an economic point of view, poverty exists in such countries because their resources are not used as efficiently as they should be.  People are not as educated as they should be and therefore lack human capital.  Infrastructure is less extensive than it should be and so resources cannot be moved around as well.  In addition, many countries have political systems that do not allow the "invisible hand" of the free market to allocate resources efficiently.  All of these problems lead to poverty even in countries that are relatively resource-rich.

Moving beyond the realm of pure economics, we find the real question.  That is the question of why these countries do not use their resources efficiently.  Some theories, like dependency theory, blame the West and colonialism.  Other theories look to culture or to political traditions.  This question of ultimate causes has less to do with economics but may be more important.

 

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