Social overhead public infrastructure in a Lewis development framework

Abstract

AbstractThis study explores the interaction between private and public physical capital accumulation within a Lewis development framework, in which public infrastructure is subject to congestion. The model shows that when both levels of capital are relatively low, a crowding‐out of private investment creates the necessary conditions for the emergence of a development trap, from which a surplus labor economy, if left to the free play of its structural forces, may never escape. Once caught in such a trap, the economy can potentially be released through a big push of public or private capital or a sufficiently balanced combination of both.