Abstract

In this paper we propose a standard Solow model augmented with public capital in the production function. The model solution displays two steady states, an unstable one and an efficient stable equilibrium. As a result the model predicts both divergence and non monotonic convergence; that is a transition path characterized by increasing growth rates up to the point where the traditional convergence behavior describes the successive evolution towards the stationary equilibrium. Using traditional cross section techniques the hypothesis of non monotonic catching-up is tested against a large sample of countries, obtaining favorable evidence.