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How does poverty affect a country's economy?

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Poverty affects a country's economy in ways such as weakening the economy, which occurs when people spend less money, and harming the education of children in poverty, which further hurts the economy by making it difficult for those children to eventually find good jobs.

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There is a strong connection between a country's level of poverty and the strength of its overall economy. When poverty levels in a particular nation are high, consumers usually spend less money. This can hurt the manufacturing and commercial economies, which in turn leads to more poverty as fewer people are hired, pay stagnates, and the GDP of a country falls.

When poverty rates decline, however, there usually is a boost in the economy. As consumers spend more, more jobs are needed, which helps pull more people out of poverty. As you can see, this circle works in both directions. Therefore, it is not always clear what the causal factor is. Determining if it is the levels of poverty and wealth or the direction of the overall economy that drives the relationship is a large part of the study of macro-economics.

It is also good to remember that high poverty levels seldom affect everyone in a country. There almost always remains a small subset of the population that holds on to a degree of wealth. Since the wealthy in a poor country often expect a certain lifestyle befitting of their status, they may look overseas to obtaining their high-end consumer goods. This often results in a dual-economy in which the rich have access to expensive foreign goods while the majority of the population has to rely on cheaper locally produced products.

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Poverty affects a nation’s economy in several ways. Because, by definition, that portion of a nation’s population living below the poverty line has little money to spend, there is less demand for many goods than might otherwise be the case. That adversely affects the supply-side of the economic equation, which means less money paid to others to produce, distribute and sell. Poverty also adversely affects a nation’s economy by diverting government revenue towards programs oriented toward the poorer and less-advantaged segments of the population, such as welfare and unemployment payments, government-provided health care assistance, and so on. That money is not going towards expanding and/or improving the infrastructure on which the entirety of the economy depends.

Another factor involving the effect of poverty on the economy involves the exorbitant costs associated with the criminal justice system. Without discounting the significant impact on the economy of white-collar crime perpetrated by the wealthy, the relationship between systemic poverty and crime is indisputable and costly. The costs associated with trials and incarceration represent major diversions of tax dollars away from activities that more substantially benefit the economy. Prisons provide jobs for corrections officers, administrators, and others, but the benefits to the economy from such activities pale in comparison to the impact on states and the national economy of having to house, police, and feed tens of thousands of prisoners daily.

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Poverty impacts a country’s economy in several ways. One impact can be seen in education. Children in poverty tend to be less successful in school. This impacts their ability to get jobs that pay well. This may hinder economic growth.

If there is a lot of poverty, the government will need to develop social programs to help alleviate some of the effects of poverty. This negatively impacts the economy, as less money is available to invest in the economy.

Oftentimes, poverty leads to increased crime rates. This means more money will need to be spent on prisons instead of spending that money on economic development.

Finally, people who are poor are more likely to have medical issues as they age. This may lead to less productivity and slower economic growth. It also may hinder the chances of a person escaping the poverty in which that person lives.

Poverty has many impacts on a country’s economy.

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There are two main ways in which poverty affects a typical economy. First, it reduces the level of aggregate demand in the economy, making the economy poorer than it could be. Second, it typically requires the government to institute some sort of welfare programs, leading to increased government spending.

When there is poverty in an economy, governments typically feel compelled to act. They feel they have to do something to help protect the poor from the effects of poverty. In the US, for example, the government provides poorer people with things like health care and help with buying food. When the government does these things, government spending has to increase. This means the government either needs to increase taxes or run higher deficits. Either way, the economy can be affected to some degree.

Perhaps more importantly, poverty can reduce aggregate demand in an economy. Poor people cannot afford to buy as many goods and services as people with more income can. When a country has a high number of poor people, its population as a whole cannot buy as much as it would be able to if there were less poverty. This means there is less demand for goods or services produced in that country.  Because of this reduced aggregate demand, the country’s GDP will be lower than it would be if there were less poverty. This can severely restrict the country’s economic potential.

These are the two most important ways in which poverty can affect a country’s economy.

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