We present a model of endogenous total factor productivity which generates poverty traps. We obtain multiple steady state equilibria for an arbitrarily small degree of increasing returns to scale. While the most productive ...rms operate across all the steady states, in a poverty trap less productive ...rms operate as well. This results in lower average ...rm productivity and lower total factor productivity. Our model is consistent with cross-country empirical evidence on di¤erences in

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... ity and employment distribution across ...rms. In our model a growth miracle is accompanied by a shift of employment from small to large ...rms, consistent with the Industrial Revolution and Japan's post-war growth experiences. JEL: L16, O11, O33, O40 We would like to thank