Poverty Cycle – Low-Income Trap
Global Economics
This diagram illustrates the poverty (development) cycle: a self-perpetuating loop where low income leads to low savings, low investment, low capital accumulation, low productivity, and therefore low growth in income, keeping households or countries trapped in poverty.
Curves and Elements
low income
Low Income: Starting point of the cycle, limiting households’ capacity to save.
low savings
Low Savings: Insufficient funds available for investment.
low investment
Low Investment: Few resources devotedtto capital formation.
low capital
Low Physical/Natural/Human Capital: Constrains productive capacity.
low productivity
Low Productivity: Output per worker remains low.
low growth income
Low Growth in Income: Incomes barely rise, feeding back into low income.
Low Income reduces households’ ability to save.
Low Savings limit funds available for productive investment.
Low Investment results in low physical, human, and natural capital formation.
Low Capital leads to Low Productivity of labour and resources.
Low Productivity constrains Growth in Income, feeding back into Low Income and continuing the cycle.
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