Economic Development as Self-Discovery

45 Pages Posted: 11 Jun 2002

See all articles by Ricardo Hausmann

Ricardo Hausmann

Harvard University - Harvard Kennedy School (HKS)

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 2002

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: Industrial policy, development

JEL Classification: L50

Suggested Citation

Hausmann, Ricardo and Rodrik, Dani, Economic Development as Self-Discovery (May 2002). Available at SSRN: https://ssrn.com/abstract=315672

Ricardo Hausmann (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

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HOME PAGE: http://www.hks.harvard.edu/about/faculty-staff-directory/ricardo-hausmann

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-9454 (Phone)
617-496-5747 (Fax)

HOME PAGE: http://www.ksg.harvard.edu/rodrik/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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