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A Gold Rush Theory of Economic Development

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Author Info
Ralph Ossa
Abstract

This paper presents a model of social learning about the suitability of local conditions fornew business ventures and explores its implications for the microeconomic patterns ofeconomic development. I show that: i) firms tend to 'rush' into business ventures with whichother firms have had surprising success thus causing development to be 'lumpy'; ii) sufficientbusiness confidence is crucial for fostering economic growth; iii) development may involvewave-like patterns of growth where successive business ventures are first pursued and thengiven up; iv) there is, nevertheless, no guarantee that firms pursue the best venture even in thelong-run.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0719.

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Date of creation: Mar 2006
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Handle: RePEc:cep:cepdps:dp0719

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Related research
Keywords: Economic Development; Social Learning; Lumpiness;

Find related papers by JEL classification:
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O14 - Economic Development, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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  1. Hoff, Karla, 1997. "Bayesian learning in an infant industry model," Journal of International Economics, Elsevier, vol. 43(3-4), pages 409-436, November. [Downloadable!] (restricted)
  2. Caplin, Andrew & Leahy, John V, 1993. "Sectoral Shocks, Learning, and Aggregate Fluctuations," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 777-94, October. [Downloadable!] (restricted)
  3. Rhee, Yung Whee, 1990. "The catalyst model of development: Lessons from Bangladesh's success with garment exports," World Development, Elsevier, vol. 18(2), pages 333-346, February. [Downloadable!] (restricted)
  4. Caplin, Andrew & Leahy, John, 1998. "Miracle on Sixth Avenue: Information Externalities and Search," Economic Journal, Royal Economic Society, vol. 108(446), pages 60-74, January. [Downloadable!] (restricted)
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  5. Hausmann, Ricardo & Rodrik, Dani, 2003. "Economic development as self-discovery," Journal of Development Economics, Elsevier, vol. 72(2), pages 603-633, December. [Downloadable!] (restricted)
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  6. repec:fth:coluec:681 is not listed on IDEAS
  7. Evenson, Robert E. & Westphal, Larry E., 1995. "Technological change and technology strategy," Handbook of Development Economics, in: Hollis Chenery† & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 37, pages 2209-2299 Elsevier. [Downloadable!] (restricted)
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