Causes of low rate of capital formation in underdeveloped countries
If they are properly tapped and diverted to productive purposes, the rate of capital formation can increase rapidly. For instance, in most of the low income countries, there is a disguised unemployment in the rural sector. factors. One example is based on the fact of low real income in developing countries which is the result of low labour productivity. This low labour productivity, in turn, is a consequence of capital shortage which is a result of the population's low saving ability. As the saving rate is determined by the low real income, the circle is closed. If there is more capital formation, Investment in the economy will increase that fosters the growth of an economy but rate of capital formation differs in economies. There are certainly few reasons determine low rate of capital formation