Income Convergence Situation Analysis

To augment the total stock of capital, countries need to save and invest in order to accelerate on the path of development. Large stock of physical capital per worker will increase the viable level of income by increasing the productivity of each worker as a result the worker will have extra physical capital to work with.
It was realized that the poor nations face trouble in accumulation of this capital as their low level of income signifies limited savings which is not enough to finance new investments. Due to low level of income as well as savings, there may remain an insufficiency which may create hurdles for poor countries to achieve higher levels of per capita income.
The equation is S=SD+SF where S is total saving, SD is domestic saving by the household, business and government and SF is foreign saving in the form of aid, loans and direct foreign investment. From this equation it can be said that a nation’s level of investment was not presumed to be strictly determined by the limited ability of the country to save, thus terminating the link between low income and low savings that is supposed to have restricted the poorest of the less developed countries to the vicious circle of poverty.