**Background:** Smallholder farmers in rural areas of developing countries represent over two-thirds of the global poor and food-insecure population. These rural economies are characterized by high dependence on agriculture, which is prone to shocks such as weather, natural disasters, financial risks, price and production risks, and policy risks. Livelihood diversification—the process by which rural families build a varied range of activities and resources to endure and expand their living standards—is considered a crucial approach for poverty reduction. The study aimed to systematically review literature addressing two research questions: (1) How does livelihood capital influence smallholder livelihood diversification strategies in developing countries? (2) What are the contributions of livelihood diversification in reducing poverty among smallholders in developing countries? The review also assessed impacts in relation to SDG-1 (no poverty) and associated SDGs (Goal 2: zero hunger, Goal 5: gender equality, Goal 8: decent work and economic growth, Goal 10: reduce inequalities, Goal 12: sustainable consumption/production, and Goal 13: climate action).
**Methods:** The review followed Campbell (2014) guidelines for systematic reviews in social science. Three major databases were used: Science Direct, Web of Science, and ABI/INFORM Collection. Eligible studies were published between January 2000 and December 2021, focused on diversification and its impact on smallholder livelihoods in low-income developing countries, and reported on at least one of five livelihood capital indicators (human, social, physical, natural, financial). Only English-language publications were included. The initial search identified 9,901 articles. After screening titles, abstracts, and keywords, 3,253 irrelevant articles were excluded. Following deduplication in Endnote, 135 articles remained. Full-text screening excluded a further 40 articles, leaving 95 articles for data extraction and synthesis.
**Key Results:** The 95 included studies were published between January 2000 and December 2021, with 15 studies published in 2018 (the highest in a single year). Geographically, 64.2% of studies were located in Africa and 35.8% in Asia, across 30 countries. Ethiopia hosted the most studies (16), followed by India (11) and Nigeria (10). Journal articles comprised 97.5% of studies and research theses 2.5%. Four thematic groups were identified: agricultural diversification, crop diversification, income diversification, and livelihood diversification. Most households adopted diversification with a combination of on-farm, off-farm, and non-farm strategies (44.4%), while 24.21% used on-farm only, 13.66% on-farm + off-farm, and 14.73% on-farm + non-farm. Quantitative methods were used in 67.9% of studies, qualitative in 15.1%, and mixed-methods in 16.9%. Human capital was the most discussed asset class (76.84% of studies), followed by financial capital (65.26%), natural capital (64.21%), physical capital (49.47%), and social capital (35.78%). Key human capital factors included education (positively associated with diversification in 15 studies), family size (positive in 11 studies, negative in 3), age (positive in 9 studies, negative in 11), farming experience (positive in 6 studies, negative in 3), and gender of household head (positive in 6 studies, negative in 7). For financial capital, access to credit was positively associated with diversification in 10 studies and negatively in 3. Family income/savings/remittances were positive in 6 studies and negative in 3. For natural capital, land holding size was positively associated in 6 studies and negatively in 6. Climate variability was positively associated in 9 studies and negatively in 1. For physical capital, access to roads was positive in 2 studies and negative in 2; access to markets was positive in 3 studies and negative in 6. For social capital, membership in development groups was positive in 6 studies and negative in 3; access to agricultural extension was positive in 5 studies and negative in 2. Regarding poverty reduction, Megbowon and Mushunje (2018) found agricultural diversification could reduce poverty by 12.7% for rural households in South Africa. Thapa et al. (2018) found households adopting diversified strategies in Nepal had mean monthly per capita expenditure 28% higher than non-adopters with a lower headcount poverty ratio of 9%. Michael (2015) found households practicing agricultural diversification in Nigeria were 63% food secure. Gani et al. (2019) revealed that households adopting diversification in Nigeria fell short of recommended calorie intake by 20%, while non-adopters fell short by 35%. Nyikahadzoi et al. (2012) estimated a 21% average increase in farm income from diversification.
**Clinical Implications:** This review provides evidence that livelihood diversification strategies can contribute to poverty reduction (SDG-1) through improved food security, increased income, sustainable crop production, and climate adaptation. The findings suggest that policymakers should consider introducing developmental policies providing smallholder farmers (including women) with access to natural (land, water), financial (formal credit facilities), and physical (access to mobility services) capitals to encourage participation in diversification activities. However, the review notes that measuring the actual economic impact of livelihood diversification on SDG-1 is problematic because only a few studies have thoroughly analyzed the impact on poverty alleviation. The review also reveals a scarcity of studies analyzing the relationship between livelihood diversification and gender equality, indicating a need for future research.