Domestic Savings Gap. An LDC suffers a domestic savings gap when it does not have enough domestic savings to use for investment to grow and develop.
LDCs must increase investment to grow and develop. Arthur Lewis, a famous development economist, posits that an LDC needs an investment of roughly 12% to 15% of its GDP to grow and develop. If an LDC only has domestic savings equal to 3% of its GDP then it has a domestic savings gap of at least 12%-3%=9%. LDCs have low savings and remain underdeveloped because they are stuck in or locked into a vicious poverty cycle.