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Public Capital, Growth and WelfareAnalytical Foundations for Public Policy$
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Pierre-Richard Agénor

Print publication date: 2012

Print ISBN-13: 9780691155807

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691155807.001.0001

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Public Capital and Poverty Traps

Public Capital and Poverty Traps

(p.174) 6 Public Capital and Poverty Traps
Public Capital, Growth and Welfare

Pierre-Richard Agénor

Princeton University Press

This chapter focuses on the role that public capital may play in helping a poor country escape from a poverty trap, that is, a low-growth equilibrium. The focus of the discussion is on the nonlinearities that may characterize the benefits associated with public capital: for instance, once an efficient, reliable, and uncongested transport network is in place, the direct benefits resulting from building yet another highway may be more limited. These nonlinearities, which may take the form of network externalities, are reviewed in the first part. The second part extends the basic model presented in Chapter 1 to account for network externalities. The possibility of multiple equilibria, and the role of a Big Push in public investment in infrastructure, is then examined. Several alternative channels through which public capital can produce an escape from a poverty trap are studied next, including effects through time allocated to education, health outcomes, and technology adoption, in a setting where the decision to switch technologies is endogenously determined through a rate-of-return arbitrage condition. The last section discusses how aid volatility, by adversely affecting public investment programs, can also lead to stagnation.

Keywords:   public capital, poverty reduction, low-growth equilibrium, economic growth, infrastructure, poverty trap

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