A bottleneck capital model of development$

A simple augmentation of the Ramsey–Cass–Koopmans growth model allows it to match observed transitions by initially poor economies. A high-convexity installation cost directly dampens investment demand for a first capital input. The resulting scarcity acts as a bottleneck, strongly dampening demand for investment in a complementary capital input as well. The match to observed transitions holds both for narrow and broad interpretations of capital. In either case, the bottleneck capital’s share of factor income need not be large. r 2006 Elsevier B.V. All rights reserved