We introduce an experimental approach to study the effect of institutions on economic growth. In
each period, agents produce and trade output in a market, and allocate it to consumption and
investment. Productivity is higher if total capital stock is above a threshold. The threshold externality
generates two steady states – a suboptimal poverty trap and an optimal steady state. In a baseline
treatment, the economies converge to the poverty trap. However, the ability to make public
announcements or to vote on competing and binding policies, increases output, welfare and capital
stock. Combining these two simple institutions guarantees that the economies escape the poverty
trap