Economic Development as Self-Discovery

Ricardo Hausmann and Dani Rodrik

No 1, Growth Lab Working Papers from Harvard's Growth Lab

Abstract: In the presence of uncertainty about what a country can be good at producing, there can be great social value to discovering costs of domestic activities because such discoveries can be easily imitated. We develop a general-equilibrium framework for a small open economy to clarify the analytical and normative issues. We highlight two failures of the laissez-faire outcome: there is too little investment and entrepreneurship ex ante, and too much production diversification ex post. Optimal policy consists of counteracting these distortions: to encourage investments in the modern sector ex ante, but to rationalize production ex post. We provide some informal evidence on the building blocks of our model.

Keywords: economic; development (search for similar items in EconPapers)
Date: 2002-03
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Related works:
Journal Article: Economic development as self-discovery (2003)
Working Paper: Economic Development as Self Discovery (2002)
Working Paper: Economic Development as Self-Discovery (2002)
Working Paper: Economic Development as Self-Discovery (2002)
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