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Economic Development as Self-Discovery

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  • Ricardo Hausmann
  • Dani Rodrik

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8952.

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Date of creation: May 2002
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Publication status: published as Hausmann, Ricardo and Dani Rodrik. "Economic Development As Self-Discovery," Journal of Development Economics, 2003, v72(2,Dec), 603-633.
Handle: RePEc:nbr:nberwo:8952

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  1. David N. Weil, 1996. "Appropriate Technology and Growth," Working Papers 96-24, Brown University, Department of Economics.
  2. Mukand, Sharun & Rodrik, Dani, 2002. "In Search of the Holy Grail: Policy Convergence, Experimentation and Economic Performance," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp02-027, Harvard University, John F. Kennedy School of Government.
  3. Eduardo Lora, 2001. "Structural Reforms in Latin America: What Has Been Reformed and How to Measure It," IDB Publications 39858, Inter-American Development Bank.
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  5. Eduardo Fernández-Arias & Peter Montiel, 2001. "Reform and Growth in Latin America: All Pain, No Gain?," Center for Development Economics, Department of Economics, Williams College 166, Department of Economics, Williams College.
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  7. Zilibotti, Fabrizio & Aghion, Philippe & Acemoglu, Daron, 2006. "Distance to Frontier, Selection, and Economic Growth," Scholarly Articles 4554122, Harvard University Department of Economics.
  8. Rauch, J E & Watson, Joel, 2001. "Entrepreneurship in International Trade," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt1qx2x540, Department of Economics, UC San Diego.
  9. Evenson, Robert E. & Westphal, Larry E., 1995. "Technological change and technology strategy," Handbook of Development Economics, Elsevier, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 3, chapter 37, pages 2209-2299 Elsevier.
  10. Eduardo Lora & Ugo Panizza, 2002. "Structural Reforms in Latin America under Scrutiny," Research Department Publications, Inter-American Development Bank, Research Department 4303, Inter-American Development Bank, Research Department.
  11. Zeira, Joseph, 1987. "Investment as a Process of Search," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(1), pages 204-10, February.
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  14. Hoff, Karla, 1997. "Bayesian learning in an infant industry model," Journal of International Economics, Elsevier, Elsevier, vol. 43(3-4), pages 409-436, November.
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