Poverty trap and public capital
Getachew, Yoseph Y.
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The paper develops a growth model of multiple equilibria. In the model, poverty trap is caused by the presence of negative externalities - side effects - during an economy’s take off. The role of growth-maximizing public investment in this economy is more decisive than in ergodic ones. Depending on the economy’s initial condition, even a temporary policy shock may bring a per- manent growth miracle, particularly, if the shock is not too weak or followed by a negative offsetting/counterbalancing one.