Abstract
Based on individual occupational choice in a model including a production function with public investment and public health infrastructure, this paper presents an examination of how allocation of public investment and public health infrastructure affects the dynamics of income. Individuals work as skilled laborers or unskilled laborers, as in the model described by Caselli (1999), and educational costs are necessary to work as a skilled laborer. Results show that government should provide both public investment and public health infrastructure to escape from the poverty trap with low income. Moreover, based on an initial allocation between public investment and public health infrastructure, it is decided how the government should form a policy to increase income growth.
Highlights
As explained by Foster and Briceño-Garmendia (2010) and UN-HABITAT (2011), African countries must be provided infrastructure (Transport, Modern Energy, Telecoms, Water System, Sanitation, andso on) to foster economic growth and to escape from poverty
Based on Chen (2010), the paper presents public expenditure of two types and examines what the government should provide to escape from the poverty trap
If the allocation for public investment is large, capital accumulation is prevented and productivity of labor is low and the economy can not escape from the poverty trap
Summary
As explained by Foster and Briceño-Garmendia (2010) and UN-HABITAT (2011), African countries must be provided infrastructure (Transport, Modern Energy, Telecoms, Water System, Sanitation, andso on) to foster economic growth and to escape from poverty. This paper presents examination of the allocation of the infrastructure of two types: one for public investment, which increases labor productivity (transport, telecoms, and so on) and the other for health infrastructure, which raises life expectancy (water system, sanitation, hospitals, and so on). Based on Chen (2010), the paper presents public expenditure of two types (public investment and public health infrastructure) and examines what the government should provide to escape from the poverty trap. After escaping from the poverty trap, the paper presents derivation of how the government allocates tax revenue between public investment and public health infrastructure to increase income growth. If the allocation for public investment is large, capital accumulation is prevented and productivity of labor is low and the economy can not escape from the poverty trap.
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