Economic Development as Self-Discovery

44 Pages Posted: 29 May 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: March 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: Economics - International Economics, International Development

Suggested Citation

Hausmann, Ricardo and Rodrik, Dani, Economic Development as Self-Discovery (March 2002). Available at SSRN: https://ssrn.com/abstract=313825 or http://dx.doi.org/10.2139/ssrn.313825

Ricardo Hausmann (Contact Author)

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

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Dani Rodrik

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

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Cambridge, MA 02138
United States
617-495-9454 (Phone)
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HOME PAGE: http://www.ksg.harvard.edu/rodrik/

Centre for Economic Policy Research (CEPR)

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United Kingdom

National Bureau of Economic Research (NBER)

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