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A Gold Rush Theory of Economic Development

  • Ralph Ossa
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    This paper presents a model of social learning about the suitability of local conditions for new business ventures and explores its implications for the microeconomic patterns of economic development. I show that: i) firms tend to 'rush' into business ventures with which other firms have had surprising success thus causing development to be 'lumpy'; ii) sufficient business confidence is crucial for fostering economic growth; iii) development may involve wave-like patterns of growth where successive business ventures are first pursued and then given up; iv) there is, nevertheless, no guarantee that firms pursue the best venture even in the long-run.

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    File URL: http://cep.lse.ac.uk/pubs/download/dp0719.pdf
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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
    Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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    1. Hausmann, Ricardo & Rodrik, Dani, 2002. "Economic Development as Self Discovery," CEPR Discussion Papers 3356, C.E.P.R. Discussion Papers.
    2. 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.
    3. Caplin, A. & Leahy, J., 1993. "Miracle on Sixth Avenue: Information Externalities and Search," Discussion Papers 1993_20, Columbia University, Department of Economics.
    4. Hoff, Karla, 1997. "Bayesian learning in an infant industry model," Journal of International Economics, Elsevier, vol. 43(3-4), pages 409-436, November.
    5. 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.
    6. Caplin, Andrew & Leahy, John V, 1993. "Sectoral Shocks, Learning, and Aggregate Fluctuations," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 777-94, October.
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