Association for Public Policy Analysis & Management

The purpose of this paper is to incorporate the role of public infrastructure investment on economic development process in low-income economies in a dynamic general equilibrium model. I use a two-period overlapping generations model for interpreting households' behavior, and consider two types of technologies (traditional and modern) are used to produce the final output of firms. This paper confirms that economic takeoff is possible only when capital per labor unit exceeds a certain threshold level. Thus, the takeoff process depends on the productivity race between the traditional and modern sectors with increasing public infrastructure investment, while public infrastructures foster the productivity of both technologies. Similarly, an effective tax rate supports the takeoff process by stimulating the wage rate, and which in turn increases the capital per labor along with the saving rates. Finally, I also review some existing literature related to the output elasticity of public infrastructure spending.