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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 indoi:10.2139/ssrn.953276 fatcat:fnlidmvsq5f4rpk642aq67kbdy