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Theories on the causes of poverty are the foundation upon which poverty reduction strategies are based. While in developed nations poverty is often seen as either a personal or a structural defect, in developing nations the issue of poverty is more profound due to the lack of governmental funds.
The culture of poverty frames low-income earners as existing within a culture that perpetuates poverty in a generational cycle. The theory suggests that the economic climate does not play a significant role in poverty. Those existing within a culture of poverty largely bring poverty upon themselves through acquired habits and behaviours.
The classical economists took the theory of the determinants of the level and growth of population as part of Political Economy. Since then, the theory of population has been seen as part of Demography. In contrast to the Classical theory, the following determinants of the neoclassical theory value are seen as exogenous to neoclassical economics:
Regions characterized by poverty, such as South Asia and Africa, have received particular attention with regard to the underinvestment predicted by Lucas. African nations, with their impoverished populace and rich natural resources, has been upheld as exemplifying the type of nations that would, under neoclassical assumptions, be able to offer ...
This theory has been explored by Ruby K. Payne in her book A Framework for Understanding Poverty. In this book she explains how a social class system in the United States exists, where there is a wealthy upper class, a middle class, and the working poor class.
The goal of Malthusian theory is to explain how population and food production expand, with the latter experiencing arithmetic growth and the former experiencing exponential growth. [28] The controversy, however, concerns the relevance of Malthusian theory in the present world. This hypothesis is inapplicable in a number of ways.
Structural theories emphasize the demographic and labor market context, which causes both behavior and poverty. Political theories contend that power and institutions cause policy, which causes poverty and moderates the relationship between behavior and poverty."
The argument begins from the observation that in equilibrium, total income must equal total output. Assuming that income has a direct effect on saving, an increase in the autonomous component of saving, other things being equal, will move the equilibrium point, at which income equals output to a lower value, thereby inducing a decline in saving that may more than offset the original increase.