Template-Type: ReDIF-Paper 1.0
Author-Name: Ricardo Hausmann
Author-Email: ricardo_hausmann@harvard.edu
Author-Workplace-Name: Harvard's Growth Lab
Author-Person: pha552
Author-Name: Dani Rodrik
Author-Email: dani_rodrik@hks.harvard.edu
Author-Workplace-Name: Center for International Development at Harvard University
Author-Person: pro60
Title: Economic Development as Self-Discovery
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.
Creation-Date: 2002-03
Keywords: economic development
Number: 1
Handle: RePEc:glh:wpfacu:1
File-Url: https://growthlab.hks.harvard.edu/sites/projects.iq.harvard.edu/files/growthlab/files/2002_econ_development_self_discovery_hausmann_rodrik.pdf
File-Format: application/pdf